Changing Online Terms For Existing Customers: Do You Need To Give Notice Or Get Consent?

Your business’s online terms and conditions can play an important role in setting the rules between you and your customers. Depending on how your business operates, they might cover payments, subscriptions, cancellations, shipping, platform use and other important parts of the customer relationship.

But what happens when those terms need to change?

Maybe you are changing your pricing model, introducing a new feature, updating cancellation rules or changing how a subscription works.

Updating the document on your website might only take a few minutes. But if customers have already agreed to an earlier version, a different question arises: does the new version actually apply to them?

Simply publishing new terms does not necessarily change an existing customer’s contract. What you need to do will usually depend on the terms they originally agreed to, what those terms say about future changes and how significant the proposed change is.

Depending on the circumstances, you may need to give customers notice, give them an opportunity to cancel or obtain their agreement before the new terms apply.

Can You Change Terms For Customers Who Have Already Agreed To Them?

If a customer has already entered into a contract with your business, the starting point is generally the version of the terms they originally accepted.

Replacing that version on your website does not necessarily replace the agreement you already have with them.

The terms also need to have formed part of the original contract in the first place. Simply having Terms and Conditions available somewhere on a website does not necessarily mean a customer agreed to them.

From there, you need to look at how the existing contract deals with changes. Some online terms contain a variation clause that allows the business to update certain parts of the agreement, while other changes may require the customer’s agreement.

The nature of the update matters too. Correcting an administrative detail is very different from introducing a new fee or substantially changing what the customer receives.

So, before making a change, ask two questions: does the contract allow this change, and what process do you need to follow?

What Does Your Variation Clause Actually Allow?

Variation clauses are common in online contracts because some degree of change is often unavoidable.

A platform might introduce new features, a subscription business might change how part of its service operates, or an ecommerce business may need to update its delivery process.

A well-drafted variation clause may explain when changes can be made, how customers will be notified and when the updated terms take effect. It may also deal with what happens if a customer does not want to continue under a material change.

That is different from giving the business an unrestricted right to change anything at any time.

The Commerce Commission has warned against variation clauses that effectively operate as a “blank cheque”, allowing a business to change prices or other important parts of a contract simply to suit itself. Its guidance indicates that terms are more likely to operate fairly where customers understand what may change, receive reasonable notice and can cancel without cost if a detrimental change affects them.

If you are relying on a variation clause, the key question is whether the particular change you want to make actually falls within its scope.

If your existing wording is unclear, a Contract Review can help you work through what the agreement currently allows.

When Is Notice Enough - And When Might You Need Agreement?

There is no single rule that says notice is always enough for minor changes and consent is always required for major ones.

The existing contract is the starting point.

If the agreement clearly allows a particular type of change and explains how notice should be given, following that process may be enough.

For example, an online service might have terms that allow reasonable operational changes to the platform and require customers to be told before those changes take effect.

The position becomes more complicated where the update affects an important part of the original deal.

Say an online platform charges customers $40 a month under terms that allow it to make operational updates. Six months later, it decides to introduce an additional $15 monthly platform fee.

The issue is not simply whether the business sends customers an email. It also needs to consider whether the existing variation clause actually gives it the right to introduce that kind of price change.

Similar questions can arise where a business materially reduces an important service, introduces significant new customer obligations, changes cancellation rights or expands its rights over customer content or intellectual property.

The more substantial the change, the more carefully the business should consider whether notice alone is enough.

In some situations, reasonable advance notice and an opportunity to leave may be enough. In others, particularly where the proposed change falls outside the variation mechanism the customer originally agreed to, fresh agreement may be needed.

Online, that could involve asking customers to actively accept the updated terms through a tick box, an “I agree” button or another clear affirmative step.

That can also provide much clearer evidence of which terms the customer agreed to and when.

Why Can Broad Variation Clauses Be Risky In New Zealand?

New Zealand businesses also need to consider the unfair contract terms rules under the Fair Trading Act 1986.

These rules apply to standard form consumer contracts and can also apply to certain standard form business contracts.

Variation clauses can be particularly sensitive because the Fair Trading Act identifies terms allowing one party, but not the other, to vary the contract as an example of the kind of term that may be unfair. It also identifies terms that allow one party to vary the upfront price without giving the other party a right to terminate.

That does not mean every variation clause is unfair.

Businesses may have legitimate reasons for needing flexibility, particularly where they provide an evolving product or ongoing service. The greater risk is where the business has broad discretion to change important terms and the customer has little ability to respond.

For qualifying standard form business-to-business contracts, the unfair contract terms regime can also apply where the trading relationship has an actual or expected value of no more than $250,000 in any 12-month period.

If your business uses standard form contracts, Sprintlaw’s guide to unfair contract terms explains the rules in more detail, while an Unfair Contract Terms Review can help identify wording that may create risk.

Does Giving Customers A Right To Cancel Help?

It can.

Where a business is making a significant change to an ongoing contract, giving customers advance notice and a genuine opportunity to leave before the change applies can make the variation process fairer.

That does not automatically make every change valid or enforceable, though. You still need to consider whether the original contract allowed the change in the first place and how significant the impact is on the customer.

How Should You Tell Existing Customers That Terms Have Changed?

Once you have worked out whether the change can be made, the next question is how to communicate it.

Simply replacing the terms on your website and changing the “last updated” date may not do much to bring the new wording to the attention of an existing customer.

Your original terms may already specify how notices need to be given. Depending on the arrangement, that might mean email, an account notification or an in-app message.

For an important change, the content of the notice matters too.

An email saying only “we have updated our Terms and Conditions” leaves customers to compare two lengthy documents and work out what changed themselves.

If the update affects something important, such as price, cancellation rights or the service being provided, it is much clearer to explain what is changing, when the change will take effect and whether the customer needs to do anything.

Businesses should also be careful about saying updated terms “automatically apply” or that a customer has accepted them simply by continuing to use the service. Whether that works will depend on the existing contract and how the new terms are introduced.

Where fresh agreement is appropriate, asking customers to actively accept the updated terms can provide clearer evidence than relying on silence or continued use.

If you are planning a significant update, having both the terms and the customer communication reviewed through a Contract Review can help make sure the process lines up with the contract.

What About New Customers?

New customers are generally more straightforward because they can be presented with the updated terms before they enter into the relationship.

That is different from trying to apply new terms to someone who became a customer under an earlier version.

It is also worth keeping clear version records so your business can identify which terms applied when a particular customer signed up and whether they later agreed to an updated version.

Key Takeaways

Changing the terms displayed on your website and changing an existing customer’s contract are not necessarily the same thing.

If customers have already agreed to an earlier version, start by checking that agreement and what its variation clause actually allows.

Some changes may be capable of being introduced through an agreed notice process. More significant changes may mean customers should be given an opportunity to leave, while changes outside the existing variation mechanism may require fresh agreement.

New Zealand businesses also need to consider the unfair contract terms provisions in the Fair Trading Act, particularly where a variation clause gives the business broad discretion and leaves customers with limited options.

If you are changing your online terms, reviewing the existing agreement, proposed changes and customer communication together can help reduce uncertainty about which terms actually apply.

Sprintlaw can help review your existing terms through a Contract Review or assess standard form terms through an Unfair Contract Terms Review. You can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.