Grandfather Clauses In New Zealand: Impact On Business Contracts

If you run a small business, you’ve probably had this moment: the rules change, a supplier changes their pricing model, a new law kicks in, or you update your terms - and suddenly you’re wondering whether your “old” customers, staff arrangements, or legacy deals are still covered.

That’s exactly where a grandfather clause can come in.

A grandfather clause can be a practical way to protect existing arrangements while allowing your business to move forward with new rules. But it can also create confusion (and disputes) if it’s drafted loosely or used in the wrong place.

Below, we’ll break down what a grandfather clause is, where you’ll commonly see it in business contracts, how it can impact your legal risk, and what to watch out for when you’re drafting or signing an agreement that includes one.

What Is A Grandfather Clause?

A grandfather clause is a contract term (or sometimes a policy term) that allows certain existing people, deals, or situations to continue under the “old rules” even after new rules are introduced.

In plain terms, it usually means:

• Existing arrangements are treated differently from new arrangements; and
• The contract “rings fences” who qualifies for the old position (often by reference to a date, a version of terms, or a specific group of customers/staff).

Grandfather clauses are common in business because they help you make changes without breaking trust or triggering immediate disruption.

Grandfather Clause vs Transitional Clause (What’s The Difference?)

People sometimes use “grandfather clause” to describe any transitional arrangement, but there’s a subtle difference:

• Grandfather clause: usually allows a defined group to keep the old position indefinitely (or until a specific trigger happens).
• Transitional clause: usually allows a temporary phase-in period (for example, “old pricing applies for 90 days, then new pricing applies”).

Both approaches can work - what matters is being clear about what you’re trying to achieve and how long it should last.

Is A Grandfather Clause Automatically “Fair” Or “Unfair”?

Not automatically. A grandfather clause is just a tool.

It can be fair (for example, protecting long-term customers from sudden price shocks) or unfair (for example, creating inconsistent obligations that confuse customers or staff). The legal risk usually comes down to clarity, consistency, and whether it conflicts with mandatory NZ laws.

And, as always, it helps to start with the basics: if you’re relying on a contract to do this work, it needs to be properly formed and enforceable in the first place. That includes the usual building blocks of offer/acceptance, certainty, and consideration (more on this in what makes a contract legally binding).

When Do Businesses Use Grandfather Clauses?

Grandfather clauses show up across all kinds of small business contracts - especially when you’re scaling, changing suppliers, introducing new products, or tightening up your risk controls.

Here are some of the most common situations where a grandfather clause matters.

1) Updating Your Customer Terms (Pricing, Inclusions, Liability)

If you sell products or services on standard terms, you might update your terms over time - for example, to:

• increase prices due to cost increases;
• change what’s included in a package;
• adjust delivery timeframes;
• update warranties, returns processes, or dispute processes; or
• introduce new limits of liability.

A grandfather clause might say that customers who signed up before a certain date keep their original pricing or package inclusions.

Business impact: This can reduce churn and complaints, but it can also create complexity in billing and customer service - and it can be a real problem if your team can’t easily tell which terms apply to which customer.

2) Subscription Businesses And SaaS-Style Plans

If you run subscriptions (memberships, retainers, online services, software access), grandfather clauses are often used when you’re introducing new tiers.

Common grandfathering approaches include:

• keeping a legacy price “as long as the subscription stays active”;
• keeping legacy features, but not adding new features; or
• moving legacy customers to new terms at renewal, unless they opt out.

Business impact: Make sure the grandfather clause aligns with how your billing platform actually works. If it can’t implement the clause properly, you may accidentally breach your own contract.

3) Employment Arrangements And Workplace Policies

Grandfathering can appear in employment contexts too - especially when a business updates policies or restructures benefits. For example, you might see it in relation to:

• commission structures;
• allowances (vehicle allowance, phone allowance);
• bonus eligibility rules;
• flexible working arrangements; or
• legacy job titles and reporting lines after an organisational change.

Important: In New Zealand, changes to key employment terms generally need to be consulted on and agreed (and a fair process matters). If you’re introducing new terms but grandfathering some staff, you should ensure your Employment Contract and supporting policies line up with what’s happening in practice.

4) Commercial Leases And Fit-Out Deals

Grandfather concepts can also show up in leasing arrangements. For example, a landlord and tenant might agree that certain outgoings, rent review methods, or incentives continue for a defined period or for the remainder of an existing term.

Business impact: A lease is usually a high-stakes, long-term commitment - so if you’re relying on grandfathering (or inheriting someone else’s legacy lease position), get the wording checked carefully. A Commercial Lease Agreement often has multiple moving parts (rent reviews, renewals, market rent clauses, assignment rules), and a “simple” grandfather clause can unintentionally conflict with other sections.

5) Regulatory Change And Legacy Arrangements

Sometimes “grandfathering” isn’t just contractual - it’s also used in a regulatory sense, where existing operators are allowed to continue operating under older rules after a regulation changes.

Even if the grandfathering comes from regulation, your contracts still matter. You may need contractual terms that deal with:

• what happens if the regulatory grandfathering ends;
• who pays for compliance upgrades;
• whether you can vary pricing if compliance costs increase; and
• what termination rights apply if the business model becomes illegal or impractical.

Are Grandfather Clauses Enforceable In New Zealand?

A grandfather clause can be enforceable in New Zealand, but it has to be drafted and used in a way that fits within contract law and any mandatory legal obligations.

There isn’t one single “grandfather clause law” in NZ. Instead, enforceability typically depends on:

• whether the contract is properly formed and certain (the clause must be clear enough to apply);
• whether the clause conflicts with legislation you can’t contract out of; and
• whether the clause is implemented consistently (your conduct matters).

Certainty: The Clause Must Be Clear Enough To Apply

Courts and dispute processes generally don’t like vague drafting. If a clause says “existing customers will keep old pricing,” but doesn’t define what an “existing customer” is, you can end up with disagreement immediately.

If you’re documenting a grandfathering arrangement, be specific about:

• who is grandfathered (named parties, defined category, account holder type);
• what they keep (price, features, service levels, benefits);
• how long it lasts (indefinitely, until renewal, until a trigger event); and
• what happens if circumstances change (pause, downgrade, transfer, assignment).

You Usually Can’t Contract Out Of Core Consumer Protections

If your business sells to consumers, your contract terms and any grandfather clause still need to sit alongside the Consumer Guarantees Act 1993 (for consumer product/service guarantees) and the Fair Trading Act 1986 (which, among other things, prohibits misleading or deceptive conduct).

That doesn’t mean you can’t use a grandfather clause. It just means you need to be careful that:

• you don’t represent something in marketing that contradicts the clause; and
• your “old terms” aren’t relying on exclusions that aren’t enforceable against consumers anyway.

Be Careful With Variations: Did The Other Party Agree?

A common business assumption is: “We updated our terms, so everyone’s on the new terms.” In reality, it depends how your contract is structured and what variation rights exist.

If you’re changing an agreement and grandfathering some people onto older terms, you should be clear whether you’re:

• creating a variation to an existing agreement;
• ending an old agreement and issuing a new one; or
• operating multiple versions of terms side-by-side.

Sometimes a deed is used as an alternative structure (for example, where you want a formal instrument to record changes or resolve a dispute without relying on “consideration” in the same way as a standard contract). If you’re unsure what structure fits, it helps to understand the difference between deed and agreement.

How Do Grandfather Clauses Affect Your Business Contracts In Practice?

Grandfather clauses aren’t just a legal concept - they have day-to-day operational impacts. If you’re using a grandfather clause, it’s worth thinking through how it plays out across your systems, your people, and your customer relationships.

They Can Create “Two Sets Of Rules” (Which Increases Admin)

The biggest practical effect is that your business ends up running multiple arrangements at once. That can affect:

• invoicing and billing;
• customer support scripts and dispute handling;
• how you quote and onboard clients; and
• how you measure profitability per customer cohort.

If you can’t clearly identify which customers are grandfathered, you may accidentally apply the wrong terms - and that’s where disputes usually start.

They Can Affect Your Ability To Scale (Or Sell The Business)

If your business has many legacy deals with “forever” pricing, it may affect:

• cash flow forecasting;
• the value of your customer base;
• your ability to standardise operations; and
• what a buyer will accept if you ever sell.

This doesn’t mean you should never use a grandfather clause - it just means you should treat it as a commercial decision as well as a legal one.

They Can Trigger Arguments About Timing (Dates, Notices, “Business Days”)

Many grandfather clauses hinge on timing: “before 1 July”, “within 30 days”, “on renewal”, “after notice is given”. If your clause relies on notice periods, make sure you define timelines clearly and consistently.

Even something as simple as counting days can cause problems if it’s not defined (for example, whether you mean calendar days or business days). For contracts that use timing triggers, it’s often worth defining business day so everyone is on the same page.

They Can Create Privacy And Data Handling Issues

Grandfathering sometimes means you’re tracking customers by sign-up date, plan version, or legacy benefits. That can involve personal information (especially for sole traders, individual customers, or account-based services).

If you’re collecting, storing, or using personal information to administer grandfathered entitlements, make sure your Privacy Policy matches what you actually do, and that your processes align with the Privacy Act 2020.

How To Draft A Grandfather Clause (Without Creating A Mess)

A good grandfather clause is clear, workable, and designed for real life (not just best-case scenarios). Here are the drafting points that most often make the difference.

1) Define Exactly Who Is “Grandfathered”

Avoid broad phrases like “existing clients” unless you define them.

Instead, consider definitions like:

• customers with an active subscription as at a certain date and time (including time zone);
• customers who entered into a written agreement signed before a certain date;
• customers who have not terminated, paused, or downgraded since that date; or
• a list of named customers in a schedule (useful for B2B deals).

2) Be Specific About What Continues Under The Old Terms

Spell out what is being preserved, for example:

• price per unit (and whether GST is included or excluded);
• minimum volumes or inclusions;
• service levels (response times, support hours);
• legacy features or access rights; and
• any legacy caps, discounts, or rebates.

If you don’t specify the scope, you risk an argument that “everything” is grandfathered - including things you never intended.

3) Include Clear End Triggers

Indefinite grandfathering can be commercially risky. Many businesses prefer a trigger that ends grandfathered rights, such as:

• the next renewal date;
• a defined end date (e.g. 6 or 12 months);
• if the customer changes plan, changes entity, or assigns the contract;
• if payment is late beyond a grace period; or
• if the customer’s usage exceeds a threshold (common in SaaS).

These triggers help you avoid being stuck with an outdated deal forever.

4) Make Sure It Doesn’t Conflict With The Rest Of The Contract

This is a big one. Grandfather clauses often get added late in negotiations, and they can unintentionally clash with:

• variation clauses;
• price review clauses;
• renewal clauses;
• assignment clauses; and
• entire agreement clauses.

That’s why it’s usually worth getting a proper review before you sign or roll out updated terms. A targeted Contract Review can help catch internal inconsistencies that otherwise only show up when there’s a dispute.

5) Align The Clause With Your Operations

Before you finalise the clause, pressure-test it:

• Can your billing system apply it automatically?
• Can your staff identify who qualifies in under 30 seconds?
• What happens if a customer “cancels” and returns?
• What happens if a customer’s business is sold and the contract is assigned?

If you can’t administer it easily, you may end up breaching it accidentally (even with good intentions).

Common Grandfather Clause Mistakes Small Businesses Should Avoid

Grandfathering is meant to reduce friction. But we often see clauses that do the opposite because of avoidable drafting and rollout mistakes.

Using Vague Language (And Hoping It Sorts Itself Out)

“Existing customers remain on old pricing” is a recipe for debate unless you define existing, old pricing, and how long it lasts.

Failing To Communicate The Change Properly

Even if your contract technically allows changes, the way you communicate matters - particularly under the Fair Trading Act 1986. If your messaging is unclear, customers may argue they were misled about what applies to them.

Accidentally Creating Unworkable Promises

Sometimes a sales promise becomes a “grandfathered entitlement” without the business meaning to. If your sales team is offering legacy deals informally, you may end up with inconsistent obligations you can’t support long-term.

Not Thinking About Transfers, Assignments, Or Group Structures

If your customer changes entity (for example, goes from sole trader to company), does the grandfathered deal follow them?

If you don’t address this, you can end up with disputes about whether a “new” entity is still an “existing customer”.

Forgetting That Some Obligations Are Non-Negotiable

You can’t use a grandfather clause to dodge mandatory legal responsibilities. For example:

• consumer protections under the Consumer Guarantees Act 1993 (where applicable);
• misleading conduct restrictions under the Fair Trading Act 1986; or
• privacy obligations under the Privacy Act 2020.

Grandfathering should fit within the law, not attempt to override it.

Key Takeaways

• A grandfather clause is a contract term that lets certain existing customers, staff, or arrangements continue under the old rules after you introduce new rules.
• Grandfather clauses are common when a business updates pricing, subscription tiers, benefits, policies, or long-term commercial arrangements.
• To be enforceable and useful, a grandfather clause needs to be clear and specific about who qualifies, what continues, how long it lasts, and what ends it.
• Grandfathering often creates operational complexity, so you should align the clause with how your billing, onboarding, customer service, and record-keeping actually work.
• You generally can’t “contract out” of key NZ legal obligations (including consumer law and fair trading rules), so your grandfather clause should be drafted to sit alongside those requirements.
• Getting a contract checked before rollout can help you avoid conflicts between the grandfather clause and other terms (like renewals, variations, and assignment).

If you’d like help drafting, updating, or reviewing a contract that includes a grandfather clause, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.