A few years back, I was consulting for a small e-commerce business that had been running for about two years. They had a decent website, solid products, and growing sales. Then came the dispute—a customer claimed they received a defective product and demanded a full refund plus compensation for "emotional distress."
When I looked at their terms and conditions, my heart sank. It was a generic template they'd found online, filled with legal jargon that didn't match their actual business practices and missing several crucial clauses. They had no limitation of liability, no dispute resolution procedure, and no clear refund policy referenced in their terms.
They settled out of pocket. It wasn't a huge amount, but it was completely avoidable.
What Terms and Conditions Actually Do
Terms and conditions (also called terms of service or terms of use) are a contract between you and the users of your website or service. Unlike a privacy policy, which is about disclosing your data practices, terms and conditions are about establishing the rules of engagement.
Think of them as the house rules. They define what users can and can't do, what you're responsible for (and not responsible for), how disputes get resolved, and what happens when things go wrong.
Unlike many privacy law requirements, terms and conditions aren't strictly required by law in most jurisdictions. But they're enormously valuable for protection. Without them, disputes default to whatever laws apply, and those laws weren't written with your specific business in mind.
Essential Clauses Everyone Needs
Acceptance of Terms
This seems obvious, but it's the foundation of everything else. You need a clause explaining that by using your website or service, users agree to be bound by your terms. This creates the contractual relationship.
For extra protection, especially for significant transactions, consider "clickwrap" acceptance—where users must actively click a checkbox saying they agree, rather than just browsing the site. Courts have generally held clickwrap agreements to be more enforceable than "browsewrap" (where terms are just linked in the footer).
Definitions
Define key terms clearly. What counts as "the service"? What's included in "user content"? Who is "you" (the user) versus "we" (your company)? Clear definitions prevent arguments later about what the terms actually mean.
User Responsibilities
Spell out what users are agreeing to do—and not do. This typically includes:
- Providing accurate information
- Keeping account credentials secure
- Not violating laws through use of your service
- Not infringing intellectual property
- Not attempting to hack or damage your systems
- Not harassing other users (if applicable)
Be specific about behaviors that matter to your business. If you run a community, have detailed acceptable use policies. If you handle sensitive data, emphasize the importance of account security.
Intellectual Property Rights
Clarify who owns what. Your content, branding, and technology belong to you. User-generated content raises more questions—do you own it, do you just have a license to use it, or does it stay entirely with the user?
Many services take a license to user content that allows them to display it, share it, and sometimes use it in marketing. Make sure your terms reflect what you actually need while being reasonable to users.
Payment Terms (If Applicable)
If users pay you, cover the important questions: How are payments processed? When are charges made? What's your refund policy? What happens if payment fails?
For subscription services, be crystal clear about recurring billing, cancellation procedures, and what happens at the end of a subscription period.
Limitation of Liability
This is arguably the most important protective clause. It limits what you can be held responsible for if something goes wrong.
A typical limitation of liability clause disclaims liability for indirect, consequential, or incidental damages and caps total liability at some reasonable amount—often what the user has paid you, or a fixed dollar amount.
There are limits to what you can disclaim. Consumer protection laws in many jurisdictions prevent you from excluding liability for fraud, gross negligence, or personal injury. But a well-drafted clause significantly limits your exposure for ordinary business disputes.
Disclaimers of Warranties
Related to limitations of liability, warranty disclaimers clarify what you're not promising. Common disclaimers:
The service is provided "as is" without warranties of any kind. You don't guarantee the service will be uninterrupted, error-free, or meet the user's specific needs.
Again, certain warranties can't be disclaimed in some jurisdictions, particularly in consumer transactions. But explicit disclaimers are still valuable for setting expectations and limiting what users can claim was promised.
Indemnification
An indemnification clause requires users to compensate you if their actions cause you to face legal claims. For example, if a user uploads infringing content and you get sued for hosting it, they would be responsible for your legal costs.
Whether these clauses are actually enforceable against individual consumers varies by jurisdiction, but they're standard in business-to-business agreements and add a layer of protection.
Termination
Reserve the right to terminate accounts and access to your service. Specify what grounds justify termination (violations of the terms, non-payment, at your discretion) and what happens to user data when an account is terminated.
Also address what happens if the user wants to terminate—can they cancel anytime? What are the consequences?
Dispute Resolution
How will disagreements be handled? Options include:
Governing law: Specify which jurisdiction's laws apply. For a US business, this might be the state where you're incorporated. For international businesses, choose a jurisdiction you're comfortable with.
Jurisdiction: Specify where lawsuits must be filed. This can prevent users from suing you in inconvenient locations.
Arbitration: Many terms require disputes to go through arbitration rather than courts. Arbitration can be faster and cheaper, but there's been backlash against mandatory arbitration clauses, particularly with class action waivers. Consider carefully whether this approach fits your business and user base.
Changes to Terms
Reserve the right to modify your terms. Explain how users will be notified of changes—email, posting on the website, or just updating the terms with a new effective date. In some jurisdictions, significant changes may require explicit consent.
Industry-Specific Considerations
E-commerce Sites
Include detailed purchase terms: shipping policies, delivery timeframes, return and refund policies, how price errors are handled, and payment security. Many countries have specific consumer rights that apply regardless of your terms, so make sure your policies are at least as favorable as required.
SaaS and Subscription Services
Cover subscription billing in detail. Address what happens to user data if subscriptions lapse, service level expectations (even if informal), and any usage limits. Consider separate terms for different subscription tiers.
User-Generated Content Platforms
Have robust acceptable use policies. Explain your moderation approach, how users can report violations, and how you'll handle DMCA takedown requests. Clarify the license you take to user content and what happens to that content if accounts are terminated.
Mobile Apps
Include app-specific terms addressing in-app purchases, push notifications, offline functionality, and platform requirements (iOS, Android). Note that app store terms also apply and may override some of your terms.
Making Terms Enforceable
Having terms is one thing; making them enforceable is another.
Notice
Users need to be able to find your terms. A link in the footer is the minimum. For important agreements, link to terms directly in the signup flow or checkout process.
Assent
How do users agree? Browsewrap (just using the site implies agreement) is the weakest. Clickwrap (checking a box during signup) is stronger. Sign-in-wrap (where continuing past a notice requires clicking) falls somewhere in between.
For consumer agreements, especially those with arbitration clauses or significant liability limitations, clickwrap with the terms (or a link to them) directly adjacent to the checkbox is the gold standard.
Readability
Courts have sometimes invalidated terms deemed too confusing or buried in legalese. While this isn't common, it's another reason to write clearly. Plain language isn't just user-friendly—it's potentially more enforceable.
Reasonableness
Truly outrageous terms may be deemed "unconscionable" and unenforceable. This is rare, but it happens. Terms that are extremely one-sided, particularly in consumer contexts, can be challenged. Keep your terms reasonable and you avoid this risk.
Avoiding Common Mistakes
Don't just copy someone else's terms. Their business isn't yours. Their jurisdiction might be different. Their practices probably don't match yours. Generic templates are a starting point, not a final product.
Don't forget to update. When your business changes—new features, new pricing, different practices—your terms should reflect that. Outdated terms can create confusion and enforceability issues.
Don't make them impossible to find. Hiding your terms doesn't help you. If users can't find them, they can argue they never agreed to them.
Don't assume terms solve everything. Terms are valuable, but they're not magic. Some liabilities can't be contractually disclaimed. Consumer protection laws may override your terms. Don't rely solely on terms for protection—good business practices matter too.
Working with Legal Counsel
For any significant business, having an attorney review your terms is worth the investment. They can ensure you're covering the right issues for your specific situation, the language is enforceable in your jurisdiction, and you haven't inadvertently included anything problematic.
That said, you don't need to pay an attorney for every word. Start with a solid template, customize it for your business, and then have legal counsel review the result. It's a more cost-effective approach than starting from scratch.
The Bottom Line
Terms and conditions might not be the most exciting part of running a business, but they're essential for protection and clarity. Take the time to get them right—future you will be grateful when a dispute arises and you have a solid legal foundation to stand on.