Adhesion Contracts: Be Careful of “Take it Or Leave It”
If you have a business, you need some certainty in the operation of your business, and in your legal relationship with your vendors, contractors or consumers. When your business has contracts, and all the contracts relate to the same product or service, it can be beneficial that each contract is exactly the same.
For example, imagine that you lease equipment or software, and you have 1,000 clients (lessees). Obviously, it would be difficult to do business if every contract with each of your 1,000 clients was slightly different–you could never keep up with what each contract says.
One Contract Fits All?
To make your contracts uniform, you will need to tell whomever is signing your contracts that the proposed agreements are “take it or leave it.” There is no room or allowance for negotiation and the terms cannot be modified through the traditional back and forth negotiation that many contracts have. This way, you ensure that all of your contracts say the same thing.
When a contract is “take it or leave it,” the contract is called an adhesion contract. As you can see from the number of these kinds of contracts in the marketplace (look at the terms of service in a typical website or social media platform), adhesion contracts are legal.
However, with adhesion contracts, courts will take a much closer look at whether the contract is fair to both parties, if the contract is challenged.
This is especially true when the party proposing the contract has more power than the other party, who may need the contract.
For example, the landlord has more power than the tenant that needs a place to live immediately. The nursing home has more power than the resident, who needs the nursing home care immediately. A lender has more power than a borrower, who may need the money for living expenses.
Unconscionability & Reasonable Expectations
When provisions in an adhesion contract are unfair, or very one sided, a court could consider them to be unconscionable and thus, unenforceable.
Courts will often look to “reasonable expectations,” saying that contractual provisions or conditions or terms that are beyond what the reasonable expectation of parties would be for the contract, may be invalid.
Again, this would not be the case for a traditional contract–but with an adhesion contract, this kind of “out of the ordinary” provision could be stricken by a court.
That means that parties using adhesion contracts, should take steps to make sure that the contract is at least somewhat fair to both sides.
No Waiver or Harsh Terms
Adhesion contracts that waive rights, limit legal remedies, or which aren’t in step with common business practices in your market or industry, could be successfully challenged by the other side to the contract. You simply don’t have the opportunity to argue “hey we negotiated this and you agreed to it,” the way you would with a normal contract where there is a back and forth negotiation between the parties.
Are your contracts safe and enforceable? Let us review your business agreements. Call our Fort Lauderdale business lawyers at Sweeney Law P.A. at 954-440-3993 today.