Why are terms and conditions important?

Online shop operators quickly face the question of whether they need general terms and conditions (GTC) and why legally compliant GTC are so important for their business model and professional success. This quickly leads to the question of whether free templates of GTC available online are sufficient for legal protection, or whether they should invest in having a law firm draft GTC.

Legally compliant terms and conditions, along with many other areas of online law, are an essential component of a legally compliant online presence for most entrepreneurs and self-employed individuals. Learn more about online law and who it affects here.

Depending on the industry and the service offered, different legal specifics must be taken into account in each case. It largely depends on whether the terms and conditions are intended for goods, online courses, services, coaching, or possibly digital products. The legally correct handling of the cancellation policy toward consumers should not be underestimated either. Creating terms and conditions is not only about protecting the potential buyer, but much more about safeguarding the rights of the entrepreneur themselves.

In this blog post, we provide an insight into the complex world of general terms and conditions as the heart of every thoughtful entrepreneurship.

General Terms and Conditions (GTC) – What is that?

General Terms and Conditions (GTC) are pre-written contractual terms and conditions for a wide variety of contracts. A company uses these to establish the legal framework for contracts it concludes with its customers. They regulate the most important aspects of the contractual relationship.

For example, it specifies the exact subject matter of the contract, which delivery and payment terms apply, and the extent to which the company is liable for damages. It also discusses warranty rights and withdrawal rights and discloses how the company handles customer data (data protection).

The use of general terms and conditions creates a uniform contractual basis that preemptively establishes legal regulations that, at best, avoid disputes or, in the event of a dispute, provide legal guidance. General terms and conditions are now used in almost all online shops, subscriptions, and services – the numerous advantages that companies enjoy when they protect themselves in this regard are now widely known.

Once legally compliant terms and conditions have been created and effectively incorporated, they will apply to all contracts concluded hereunder.

In order for the terms and conditions to be effective and become part of the contract, certain legal principles must be observed. The terms and conditions must be clearly formulated and comply with the requirements of §§ 305 et seq. of the German Civil Code (BGB).

The general terms and conditions must also be effectively incorporated into the contract to be valid. To achieve this, the contractual partner must be informed of the easily accessible and understandable general terms and conditions. Depending on the industry and the specific case, very different and sometimes strict requirements and circumstances are considered sufficient or insufficient, so that validity may fail at this point.

The contractual partner must expressly or at least tacitly agree to the General Terms and Conditions. The decisive factor is that the contractual partner has actually been able to take note of the General Terms and Conditions, either through a notice or through the possibility of accessing them online. Here, too, there are countless individual case law decisions regarding the manner and timing of the provision of General Terms and Conditions.

Only terms and conditions that are clearly and understandably formulated become effective, § 307 para. 1 sentence 2 BGB. In terms of content, the terms and conditions must comply with legal provisions. Clauses that are materially surprising and not to be expected by the contractual partner, for example, are invalid, § 305c BGB.

Section 309 of the German Civil Code (BGB) contains a long list of clauses that are always invalid. These include, for example, unreasonably long notice periods or the exclusion of liability for intentional or gross negligence.

According to § 308 BGB, there are also clauses that can be appropriate and therefore effective depending on the individual case.

According to § 307 BGB, clauses that unreasonably disadvantage the contractual partner are generally invalid. This is generally assumed whenever a clause deviates from fundamental legal principles or when essential rights and obligations of the contractual partner are restricted to such an extent that the purpose of the contract could be jeopardized.

As a general rule, clauses can also be invalid if they are not drafted and formulated in a transparent and comprehensible manner. However, the terms and conditions can also be limited by individual agreements, as these take precedence according to § 305b BGB.

If terms and conditions have in fact not become part of the contract, either wholly or partially, or are invalid, the remainder of the contract generally remains valid, § 306 para. 1 BGB. The content of the contract is then determined according to the statutory provisions, § 306 para. 2 BGB.

In summary, it can be stated that terms and conditions are effective and serve as the contractual basis if they have been validly incorporated into the contract, the clauses are clearly and understandably formulated, and none of the legally defined grounds for invalidity apply. Only careful, comprehensive, and individual review can ensure that the terms and conditions are legally effective in each case and protect both the buyer and the entrepreneur.

Advantages for entrepreneurs in the correct use of legally compliant terms and conditions.

As already explained, the correct and legally compliant creation of terms and conditions depends heavily on the individual case and the service offered. However, once this hurdle is overcome, the use of terms and conditions brings many advantages for entrepreneurs.

Terms and conditions provide clarity and transparency regarding all concluded contracts. In this way, disputes are proactively prevented through clear and comprehensive provisions.

A major advantage is the limitation of the entrepreneur’s liability to intent and gross negligence. Liability for slight negligence can be effectively excluded in the terms and conditions. In this way, the entrepreneur immediately protects themselves from excessive or unfounded claims for damages through their terms and conditions.

In the terms and conditions, the entrepreneur can also partially deviate from the legally prescribed regulations and thus establish provisions that are more favorable for the business.

Die Nutzung von AGB spart Unternehmen Zeit und somit Geld! Ihre vielfach genutzten Vertragsbedingungen wurden einmal bis ins kleinste Detail durchdacht und rechtssicher aufgesetzt. Auf diese kann nun dauerhaft zurückgegriffen werden, ohne jeweils erneut Bedingungen auszuhandeln und hier wohlmöglich rechtlich grobe Fehler zu begehen. Der Vertragsschluss kann so effizient, schnell und rechtssicher mit einer Vielzahl an Kunden erfolgen.

Both this time aspect and the trust gained from customers’ transparent and easily accessible terms and conditions give every company a real competitive advantage over companies that do not disclose their contractual terms and conditions and may vary them for each sale.

Additionally, the likelihood of resource-consuming legal disputes decreases – because in legally flawless terms and conditions, the solution to many legal conflicts is usually already apparent.

If a company offers its services to both consumers and other businesses, its terms and conditions can be designed for both B2B and B2C sales, ensuring legally compliant contractual provisions for each scenario.

Protecting your company individually with general terms and conditions offers the opportunity to save time by standardizing business processes. The time saved can be used to improve other areas of your business.

Terms and Conditions – free template or created by a lawyer?

Since the various advantages of terms and conditions are undeniable, there are countless seemingly free options to create them using templates or generators.

At first, this seems like an inexpensive and quick solution.

However, the problem is that usually only standardized templates are offered, which cannot capture the case-specific risk factors of the respective business model. As a legal layperson, one is neither able to identify these risks nor correctly and fully incorporate them into any templates.

With the dynamic development of legislation and case law, there is always the risk that templates and generators are not up to date.

We also examine the risks of creating legal texts using generators in detail in our blog post on the privacy policy – you can find the post here.

Individual clarification of open questions or custom adjustments is simply not possible when using free templates.

The major risk of using free terms and conditions templates is that, at best, they may be validly incorporated into the contract but could contain ineffective and/or incomplete clauses that provide no protection for the company in the event of a dispute. The user is then lulled into a false sense of security, while the ‘free terms and conditions templates’ ultimately entail potentially unpredictable costs due to avoidable legal disputes.

If lawyers thoroughly review your business model for industry-specific risks and opportunities and provide advice based on this, legal experts can draft terms and conditions that are individually tailored to the requirements of the specific company and industry.

Lawyers can take the current legal situation into account and provide individual guidance on how the terms and conditions can also become valid contractual components. Even if the terms and conditions are legally correct and comprehensively cover all conceivable modalities, opportunities, and risks, they will not become part of the contract if they are not properly incorporated.

Subject-matter experts can then legally inform the company about the effects of the individual clauses in the terms and conditions and address legal questions in a manner appropriate to the audience. This should certainly be utilized, as every user should be able to understand and follow the contractual terms they regularly set down in detail – after all, the contracts concluded for the services offered are the core of any business.

Seeking a legal expert early on and investing a certain amount in yourself and your business for the individual drafting and review is definitely advisable for anyone who wants to focus on legally secure growth of their company and customer satisfaction.