Many businesses use standard terms and conditions to regulate their contractual relationships. Standard terms can make trading easier when a series of similar transactions are to be completed. Under German law there are several aspects to consider when designing standard terms.
Standard terms and conditions under German law
Under German law businesses must observe requirements as to both form and substance when it comes to using standard terms and conditions.
What are standard terms and conditions?
Standard terms and conditions are a set of pre-formulated list of terms and conditions which are designed to form the basis of a business’ contractual relationships and/or to regulate similar transactions of a repetitive nature.
In many cases, businesses require that the other party accept the standard business terms before a transaction can take place. Standard terms and conditions are therefore generally considered to be unilateral contractual conditions which have not individually negotiated.
The term ‘transactions of a repetitive nature’ is fulfilled when a business conducts 3 similar transactions. In some cases, it is sufficient, where a business has only just started using standard terms and they have only been used once, that there is ‘an intention to use them again’. In business to consumer transactions a single use is also sufficient to establish the existence of standard terms. In this case, the determinative factor is that the terms are unilaterally created and that the consumer has no possibility to influence the contractual terms. The case law has clarified that the fact that a consumer is given the opportunity to sign the terms does not mean that the consumer influences them. Instead the term ‘influence’ means the possibility to negotiate the content of the terms.
In which business sectors can general terms and conditions be used?
Standard terms and conditions are often used in contractual arrangements concerning the sale of goods, banking, property rental and internet services.
Under German law, the use of standard business terms is not permitted in matters concerning family law, wills and estates and company law. Employment matters, collective agreements and internal company agreements on working conditions must also be individually negotiated and cannot be regulated by standard business terms.
Is the use of standard terms and conditions advisable?
Provided they are professionally written and modified for the particular business sector in which they are to be used, standard terms and conditions can save businesses time and make it easier to conclude a large number of contracts.
On the other hand, should a legal dispute arise and a standard business term be declared void, the courts will often substitute the clause for a less favourable statutory provision. This can be disadvantageous for businesses.
A particularly pragmatic use of standard terms and conditions can be to replace inadequate or ill-defined statutory provisions. In this case, the standard business terms offer clarity and can help in a legal dispute.
What to bear in mind when using standard terms?
In B2C transactions:
The standard terms and conditions must be written in such a way that consumers can understand them. Under the so-called ‘transparency requirement’, a person who has no legal background must be able to understand the terms.
The terms must be legible. Things to consider here include: the size of the writing and a clear structure. A consumer must be able to take note of the terms without undue difficulty.
It must be obvious to the consumer that the standard terms are incorporated into the contract. This means the business must draw the consumer’s attention to the standard business terms at the time of the contract is concluded.
The standard terms cannot be incorporated into the contract after the contract has been entered into. In practice this means that standard terms of business that are printed on the back of a contract are not incorporated into the contract unless there is notification on the front of the document that they apply. Standard terms and conditions printed on the back of invoices or receipts also remain ineffective for lack of incorporation.
Where a large number of transactions are conducted or where it is unreasonably difficult, due to the type of contract being concluded, to draw attention to the standard terms, it is sufficient for them to be displayed on a notice at the place where the contract is being concluded, provided the notice is clearly visible. This is the case in car parks or in sport centres.
In internet transactions, a clear indication must be given that the retailer’s general terms and conditions are incorporated into the contract. Consumers must also be able to download the terms.
In B2B transactions:
The rules on the incorporation of standard business terms are less strict in business-to-business transactions.
For the standard terms to be incorporated, it is sufficient that the intention to incorporate them was clear to the other party and that the other party does not object to their incorporation. The other party must simply be placed in a position to obtain knowledge of the standard business terms without undue difficulty.
Where both parties make use of standard terms, only those terms that have been explicitly agreed by the parties apply. If there are contradictory terms, the corresponding statutory provisions apply in their place.
Examples of ineffective clauses
Through the use of standard terms and conditions, businesses can easily create contractual relationships that are disadvantageous to consumers. Generally, consumers do not have the same knowledge of the legal consequences of agreeing to specific clauses as businesses have. To protect consumers from exploitation by businesses, German law contains a number of legal provisions which declare standard terms and conditions ineffective in certain circumstances. These rules can be found in §§ 305 et seq. of the German Civil Code.
Clauses which are always ineffective include:
- The exclusion of liability for gross negligence
- Increasing the price for a product or service which is to be delivered or performed within 4 months
- The exclusion of liability for faulty used goods
- Unexpected clauses – those which the contractual partner could not reasonably have expected
If an exclusion clause is ambiguous, it is generally interpreted in the consumer’s favour. To avoid them being declared void, clauses should be formulated as clearly and precisely as possible.
The general legal position is that a clause is considered to be void if it places the other party at an unreasonable disadvantage. This would be the case if the clause being relied on diverges too far from the purpose of the corresponding statutory provision or if the clause restricts the rights and duties which arise naturally from the contract so fundamentally that the performance of the contract and achievement of its aim is put at risk (§ 307(2) nos. 1 and 2 BGB).
Terms that are agreed between businesses are not subject to the legal provisions contained in § 305 et seq. BGB. If a dispute arises, the courts will assess any terms and conditions on the basis of good faith. Clauses which contain a patently unreasonable disadvantage for the other contractual party will often breach the good faith principle.
If terms and conditions contain an ineffective clause, this does not affect the validity of the whole contract. Instead, the relevant legal provision is implied into the contract (§ 306(2) BGB).
There is no obligation to use standard terms and conditions. However, it is advisable to make use of standard terms of conditions to make conducting repeat business easier and ensure legal certainty. Terms should always be specific to a business and take account of current case law. Any ineffective clauses will often be construed against the party trying to benefit from them.
It is therefore highly advisable to have standard terms drafted by specialists who have knowledge of the current case law and can provide individual advice to businesses.
Businesses should also have any existing standard terms and conditions regularly checked, to ensure they are up-to-date. Terms which may have been legal yesterday, could be illegal today. This is why it is not advisable to make use of specimen terms. In addition, specimen terms are copyright-protected and their illegal use can be pursued by the copyright owner. If the terms have been lifted from a competitor’s website, the competitor could send a costly warning letter for the breach of competition law, even if the terms themselves are ineffective.
When it comes to designing and implementing effective standard terms and conditions, obtaining competent legal advice is well worthwhile.
For more advice on general terms and conditions, contact our team of expert German lawyers on 0221 / 951 563 0 (Beratung bundesweit).