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If you run a business, you should be aware of your legal requirements under the Australian Consumer Law (ACL) about warranties. When offering warranties to customers, you must comply with several obligations. Not complying with these obligations means you could face serious penalties. This article will explain the key things that you should consider when deciding whether to offer a warranty against defects with your products or services.

When Am I Offering a Warranty Against Defects?

If you are providing goods or services to customers, they are entitled to a number of consumer guarantees under the ACL.

If there is a defect in your product,  the ACL holds that you will have to offer the customer a: 

  • repair;
  • replacement; or
  • refund.  

However, a warranty against defects is a statement that businesses make to customers that if their products or services are defective, they will:  

  • repair or replace the products;  
  • resupply or fix a problem with the services; or
  • compensate the customer.  

While these are quite similar, a warranty against defects will go above and beyond the consumer guarantees under the ACL.

You need to be careful in your advertising when making references such as ‘money-back guarantees’. That is because these statements are likely warranties against defects. 

Do You intend to Offer Warranties?

When you are drafting your terms and conditions, you will need to consider whether or not you want to offer a warranty.

For example, say you run a business which sells house paint. If you are offering a money-back guarantee if the paint cracks within seven years of purchase, you will be offering a warranty against defects.

Have You Complied With the Mandatory Requirements?

If you are offering a warranty against defects, there are a number of requirements that you must include within the warranty document. Some of these requirements include clearly outlining:

  • the mandatory wording;
  • how long the warranty period will be;
  • what your customer must do if a defect arises; and
  • what your customer must do to make a warranty claim.

You should have a separate warranty document which sits alongside your terms and conditions. These mandatory warranty requirements must be contained in one document. 

For example, your terms and conditions might mention that you will replace your defective products within two years. But, this will likely be considered a warranty against defects. Therefore, if you do not also include the mandatory wording and other requirements that go with warranties, you could be breaching the ACL.

Instead, it is better to simply reference your separate warranty document in your terms and conditions. You should state that the warranty document covers how you will handle any defects or issues with your goods or services.

Are You Passing on a Manufacturer’s Warranty?

If you supply products to customers that are originally made by a manufacturer, you may want to extend the warranty that the manufacturer provides to your customers

For example, if the manufacturer provides a five-year replacement guarantee against its paint cracking, and you supply this paint to customers, you should let them know about this five-year guarantee.

If your manufacturer has a warranty, you will need to consider how your customers make a claim under that warranty. It must be clear whether the customer needs to make a warranty claim to you or to the manufacturer directly. You will also need to decide whether you will have any role in assisting customers in making claims to the manufacturer.

If the manufacturer has a warranty document, you should provide this to your customers. Ideally, you should also have any manufacturer warranty documents reviewed by a lawyer. This is because the contents of their document may mean that you will need to have your own prepared, to reflect the manufacturer’s warranty. 

You will also need to decide whether you intend to provide any warranties of your own. 

For example, if you have a painting company (which uses the manufacturer’s paint), you could also guarantee that your painting services will be free from defects for a year. If this is the case, you will be providing a warranty against defects and will need a separate warranty document.

Check Your Terms and Conditions and Advertising

As mentioned above, if you do not intend to provide a warranty against defects, it is important that you don’t mistakenly provide one.

For instance, you should be careful about making any references in your advertising or legal documents to: 

  • warranties;
  • guarantees; or
  • money-back policies.

This is because any of these references could actually be considered to be a warranty against defects. If you mistakenly provide a warranty against defects, but you do not comply with the mandatory requirements of the ACL, you could face penalties.

Key Takeaways

Before offering a warranty against defects, you should consider whether you intend for it to go above and beyond your customer’s rights under the ACL. If you intend to provide a warranty against defects, you will need to have:

  • a warranty document prepared;
  • your terms and conditions reviewed; and
  • any manufacturer’s warranty reviewed.

If you have any questions about warranties against defects, contact LegalVision’s competition lawyers on 1300 544 755 or fill out the form on this page. 

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