A topical example of this is the energy industry. With so many companies offering to cut the price of your utility bills and so many people shopping around for the best deals, businesses in this sector are keen to tie in customers for as long as possible. The traditional way to do this is of course to tie customers in for a long duration. However as many customers are now more commercially aware, they know that the market place is constantly changing, they know that each energy provider is keen to get as much of their business as possible with so much competition, and they are unlikely to sign up to long periods. Therefore these service providers have had to become more legally savvy themselves to tie customers in and one way they are doing so is through the use of carefully drafted ‘notice of termination' clauses.

In most contracts for services there is a clause that provides that either party can terminate the contract on giving the other party a prescribed period of notice. Generally, a notice to terminate must follow the precise procedure laid out in the contractual terms to be effective.

To take advantage of this, many service providers include provisions that require customers to give either a very long notice period, in some cases up to 12 months, which in effect means the contract runs for a further year once you decide to terminate, or are using clauses which state that notice to terminate must be given to expire either X number of months before a certain date (usually quarter days) or, in the worst cases, that notice must be given X number of months before a specific date. In effect this leaves only one day in a year that notice to terminate can be served which, if missed, means the contract will run for not only the year to the next termination date, but also the length of the notice period which must be given on that date. This could mean a contract runs for up to a further two years! This could be extremely expensive for a customer tied into some contracts where prices are index linked or subject to a specific increase each year. Indeed, many companies offer the first year of services for a substantial discount on the basis that the customer won't terminate and will be tied in for another year at a much more expensive rate.

Although this may seem extremely unfair in many cases, it is in most cases perfectly legal. The main exceptions to this rule are contracts dealing with consumers. Under the Unfair Terms in Consumer Contracts Regulations (UTCC), any term which is unfair is not binding upon the consumer.

Clearly, in most business to business contracts one party does not deal as a consumer and so the UTCC Regulations do not apply. Although UCTA does apply to business to business contracts, it provides only that attempts to limit or exclude liability must be reasonable taking a variety of factors into account. The current trend in the Courts is towards giving effect to what the parties have agreed between themselves and so relying on such clauses being unreasonable is a risky approach.

It is therefore very important that when entering into contracts for the supply of services, directors and business managers think very carefully about the effect of termination provisions in the contract they are about to sign. Where possible, it is advisable to seek advice from your solicitor and perhaps, if possible, try to negotiate the termination provisions. Failing that, any important dates on which notice must be given if termination is desirable should be diarised with several reminders in advance of the date in question, otherwise you could find yourself tied into long contracts for services that you either no longer want, or are not cost effective.

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This article was prepared by Aaron & Partners LLP. For details of Aaron & Partners' full range of legal services click here.