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What is a Terms of Service agreement and why could your business need one?

By Lauren

Terms of Service are exactly that – the terms you agree with a 3rd party  who is commissioned to carry out certain services for your business.  That 3rd party could be a freelancer, a contractor, a company or an off-shore service supplier.  It can also serve as the terms you agree with a client who has instructed you to render services.  Unless Terms of Service are agreed and the document is signed, you don’t have a legally enforceable document.  Both parties need to agree to the terms set out.  The terms can be set out by you or the person doing the work, or both.  The document becomes legally binding if the agreement has been signed and dated by both parties.  Hopefully, without confusing the issue too much, certain terms of service may not require a signature by both parties – a simple ‘yes’ on an email may suffice.  You need the advice of a commercial lawyer that will help you decide if the agreement will require signatures.

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Planning Terms of Service

Firstly you need to plan what should be covered by your Terms of Service agreement.  These can vary according to your business type and the business relationship you are proposing with the 3rd party.

It is easy to overlook important aspects of an agreement that could create conflicts.  The important areas many Terms of Service agreements will need to cover include:

  • Details of the supplier and customer
  • Who’s the customer (person or company who actually purchases services)
  • Who’s the supplier – (person or company who supplies services)
  • Commencement date
  • Conditions of the agreement
  • What is the customer data and how it should be governed or protected
  • Intellectual property rights
  • Services detailed
  • Information relating to fees and payment terms
  • Contract termination terms

The key thing is to make sure the Terms of Service document covers the important points with regard to your specific relationship.  You should especially consider what might go wrong and how you can protect both parties from undesireable outcomes.  With advice from a commercial laywer you can get advice on the best wording to cover all of the above points.  They can also help you consider how much flexibility you would like to offer your supplier of services or client within the Terms of Service’s wording.

For instance, you can decide to outsource work to a freelancer or company, and a Terms of Service agreement should seal that relationship.  Remember, some terms of service can be very divisive if you haven’t discussed the terms with your supplier before you finalise them in a document with your lawyer.   This might be the case if the 3rd party is not used to signing legal documents and may not understand the reasons behind some particular clauses.  It may help to read through the document together before it is signed in these cases.   Or it may be the case that you need to negotiate on a point that you have added to safeguard your business from excessive liability when things go wrong.

A Terms of Service agreement can also protect you from other unexpected outcomes.  You may not have considered how you will pay for expenses incurred by the supplier and if it’s not stipulated at the start in your Agreement you could end up with an unexpected additional bill over and above the price that was initially agreed.

In summary, a terms of service agreement is a document that simplifies your business relationship with a service provider or client.  All business relationships need a document to make it official.  Whether you’re dealing with suppliers, service providers or clients, you need to make that relationship official with a terms of service.  Why?  Because a terms of service works as a reminder of what you have agreed with the other party.  If one of the parties forgets what’s been agreed or breaches the agreement, or even fails to live up to the agreement made and fails to make payment, the terms of service agreement will be the document by which you’ll defend your case and resolve the conflict.

If you would like support drafting a Terms of Service agreement for your next business relationship, please get in touch with our associate David Gordon at DG Law by email at dg-law@lgbusinessadvisors.co.uk or call 020 7113 4003.

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