As consumers, we are largely aware of what warranties are and what they mean to us. We know they come with our new phones, our new air-fryers and even our new cars. Warranties also exist in business to business (B2B) contracts and aim to assure a business customer on the quality of the goods it is receiving under a contract.
What is a warranty?
A warranty is an assurance or promise given by a party under a contract which, if breached, will usually give the other party the right to claim damages. A product warranty is a promise by the supplier or manufacturer as to the quality of a product. Some terms are implied by statute, such as the requirement that a product is of satisfactory quality, but these tend to be uncertain. Parties of B2B contracts often prefer to negotiate specific warranties.
Here are some examples of warranties which you may find in commercial contracts:
Free from defects in design, materials and workmanship under normal use
This warranty aims to provide the customer with assurances beyond the product itself, but in relation to the components and creation of the product. While a product may be of a satisfactory quality, factors such as the quality of the materials used may impact the lifespan or design of the product. If defective or poor-quality materials are used in the manufacturing of the product, the customer will be entitled to a remedy.
Complies with product specification
The parties may agree a product specification of the goods, which may vary in detail depending on the nature of the product. It is important that the customer approves the specification before entering the contract to ensure it meets its requirements.
This warranty requires the supplier to ensure the product complies with the specification. In this instance, the supplier will want to limit their liability under the warranty in relation to defects which have arisen due to the customer’s specification.
A supplier may seek to limit the rights of a customer in relation to a defective product, so that the warranty only applies in certain circumstances.
It is not uncommon for contracts to contain exclusions of the warranties, such as:
- Defects arising due to the customer’s failure to follow the supplier’s instructions
- Wear and tear of the product
- Minor defects
- If defect arises from any request or specification supplied by customer
- Parts not supplied by the supplier
The exclusions aim to limit the customer’s ability to bring a claim for breach of warranty, while protecting the supplier from defects which are outside its control.
A warranty period can give both the supplier and customer certainty as to the duration of the warranty. When negotiating an appropriate length for a warranty period, both parties should pay particular attention to the nature of the product, its lifespan, value, a reasonable period in which latent defects would arise and industry market standard.
Where goods are perishable, raw, low value or intended to be immediately sold by the customer to a third party, it would be reasonable to agree to a shorter warranty period or even limit the period to delivery only.
On the other hand, a product of a higher value and with a longer lifespan, such as manufactured goods, should warrant a longer warranty period.
As a customer under a B2B contract, it is important to consider certain obligations imposed to benefit from the protection of a warranty. Typically, a customer may be required to:
- Notify the supplier on becoming aware, or at the point at which it ought reasonably to have become aware, of the defect
- Using the product in accordance with instructions
- Not repair or modify the product except with supplier’s consent
- Inspect the products on delivery.
Failing to comply with the obligations may leave a customer without the right to a remedy for defective goods and at a loss. When agreeing contractual terms, it is advisable to seek legal advice from the outset, whether you are a customer or supplier, to ensure your interests are protected.