Now is a great time to check whether your standard terms and conditions of sale are effective due to the implementation of new mandatory warranty requirements. These requirements are in addition to the consumer guarantees introduced under the Competition and Consumer Act 2010 (CCA). These changes, coupled with the commencement of the Personal Property Securities Register on 30 January 2012, mean that many terms of sale drafted before 2011 are no longer adequately protecting the seller's business.

A common warranty against defects that many businesses provide in their standard terms and conditions of sale is:

'We warrant that our goods will be free from faults. If goods we supply are found to be faulty within the first 12 months following their purchase, we will promptly repair or replace those goods at our cost.'

From 1 January 2012 businesses are required to include information and mandatory text prescribed by the Competition and Consumer Regulations 2010 (CCR) whenever they provide a warranty against defects in connection with a consumer transaction. As a result, the common warranty above is no longer sufficient for consumers.

What is a consumer transaction?

Under the CCA 'consumer transaction' is one that involves the supply of goods or services that are either:

  • Ordinarily acquired for household, domestic use
  • Have a value of less than $40,000.

It is the second limb of this test which means many transactions between businesses are subject to the rules and regulations regarding consumer transactions.

What are the Mandatory Requirements for Warranties Against Defects

Under the CCR, businesses providing a warranty against defects to a consumer must including the following information:

  • The term of the warranty
  • The contact information of the person giving the warranty against defects
  • The procedure to be followed for a consumer to make a claim
  • Confirmation that the warranty does not exclude the consumer guarantees
  • Compulsory wording relating to the rights of consumers under the CCA that cannot be excluded or modified.

The basis for the mandatory wording requirements is to ensure that businesses pro-actively inform customers of their rights not only under any warranty conditions, but also their rights to access remedies under the statutory guarantees regime which commenced on 1 January 2011.

Failure to comply with the mandatory requirements is a strict liability offence with a penalty of up to $50,000 for a company and $10,000 for an individual.

How to comply

To ensure that your business complies with these new mandatory requirements, your standard terms and conditions of sale and any product packaging should be checked to see whether they contain a warranty against defects and if so, update the warranty to comply with the new requirements. Further, if you are part of an arrangement between a retailer and a manufacturer or wholesaler, you should also check your terms and conditions with the manufacturer or wholesaler to ensure that any warranty passed on by you as a reseller is compliant with the new regulations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.