What Should a Terms and Conditions Agreement Include?

A Terms and Conditions (T&C) agreement is a legal contract that includes what your business will do for its customers and what you expect from them. The clauses you choose to include will depend on the types of goods or services you offer via your website or app. Every clause must be lawful and easy to understand.

This article will explore the purpose and benefit of the main types of clauses you should include in your Terms and Conditions agreement. We'll analyze real-world examples to understand how to effectively serve your customers while protecting your business.

What Are the Main Clauses in a Terms and Conditions Agreement?

Whether you call it a Terms and Conditions agreement, Terms of Use, Service Agreement, or Terms of Service, the clauses you should include depend on:

• Your business type
• How your customers interact with your website or app
• The laws that apply in your jurisdiction

The following clauses are essential to most T&C agreements.

Effective date

Begin your Terms and Conditions agreement by letting your customers know the effective date, which means when the contract takes effect.

It's normal to update T&C agreements regularly, so post the latest effective date at the top of your agreement so it's clear for your customers. You should also contact your customers to inform them of updates to your T&C agreement and how they can accept them.

For clarity, Microsoft includes the publishing date and effective date at the top of its Service Agreement:

Introduction clause

As the name suggests, the introduction clause briefly explains the nature of your business and the goods or services you offer.

It lets your customers know exactly where they stand by clarifying whether its terms apply when simply browsing a website or using an app or only when making a purchase. It also defines key terms, phrases, and abbreviations that will be used throughout the T&C agreement.

Note three takeaways from YouTube's introduction clause below:

• Introduction to the services YouTube provides
• Links to the Help Center and other policies
• Disclosure of its parent company, Google LLC, and how it will be referred to in the agreement

Acceptance of terms clause

You will often find the acceptance of terms section right after the introduction clause. This clause informs customers how to accept or reject the Terms and Conditions.

Businesses can choose one of two options:

• Explicit consent: Also known as “clickwrap,” this requires the customer to take affirmative action to agree to the Terms and Conditions. For example, you could require customers to click an “I agree” button when they enter your website. If users decline, they may be unable to access your services. This is preferable for many businesses.
• Implied consent: Also called “browsewrap,” this does not require any action on the customer’s part beyond accessing the business’s services. The acceptance of terms clause explains that ongoing use of the platform indicates that customers agree to its terms and conditions, which are mandatory for all users. The downside is that these agreements can be difficult to enforce and may not stand up in legal proceedings.

YouTube currently uses the browsewrap, as seen below. Its "Applicable Terms" clause references other relevant guidelines and policies and establishes the following:

• Users are subject to YouTube’s Terms of Service
• Terms may be periodically updated
• Customers who do not accept all the terms may not use the service

In a well-written, comprehensive Terms and Conditions agreement, the acceptance clause helps establish a legally binding contract between the user and the business. It is important to analyze the needs of your business and ensure your T&C agreement will do its job when disputes arise.

Privacy policy reference

A Privacy Policy is a legal requirement, so it is vital to reference it in your Terms and Conditions agreement. Your Privacy Policy ensures your business complies with regulations such as the GDPR, CCPA, and other state and federal privacy laws.

The privacy clause in your T&C agreement should:

• Make it clear your customers are bound by the company's Privacy Policy
• Provide a link to the Privacy Policy in full

In its Terms and Conditions, Apple Media Services includes a simple statement showing that users must also abide by Apple's Privacy Policy, which is linked:

Costco goes a step further by clarifying the purpose of its Privacy Policy and linking to it:

Including a link to your Privacy Policy shows your customers you are transparent about how you use their data, building their trust and confidence in your organization.

Payment and billing terms clause

If your business provides paid services or subscriptions, your Terms and Conditions agreement needs a clause covering payment and billing terms. Without one, making your customers pay may be very difficult or even unlawful.

Common features of payment clauses include:

• Payment due dates
• Payment methods
• Late payment penalties
• Applicable taxes
• Cancellation policies
• Refunds and returns

The world's biggest streaming site, Netflix, includes a "Billing and Cancellation" clause in its Terms of Use. The clause below also establishes Netflix's right to change prices and subscription plans and customers' rights to terminate their contracts in response to these changes:

Governing laws clause

For your Terms and Conditions agreement to be valid, it must be governed by state, federal, or international laws.

Your governing laws clause lets your customers know which country or state's laws will apply if they want to take legal action against your company. An example of legal action is being sued by a customer for financial compensation for failing to deliver on your Terms and Conditions (known as breach of contract). Clearly defining the governing laws also ensures disputes are resolved in a jurisdiction familiar to your business.

In this example, Best Buy highlights that federal law or Minnesota state law governs its terms and any disputes:

Another option is to embed a reference to the governing laws in the dispute resolution clause, as seen in this example from Meta, the owner of Facebook. The clause stipulates that Facebook's Terms of Service are governed by California state law. It even goes so far as to name the US District Court that has jurisdiction over claims, actions, and disputes:

Dispute resolution clause

As we have seen, dispute resolution and governing law clauses are closely linked. Dispute resolution clauses serve several purposes, including:

• Attempting to settle disputes without resorting to legal action
• Establishing the legal framework for resolving disputes and making claims for damages
• Setting out time limits for taking legal action, such as filing a lawsuit for failure to fulfill the terms of the agreement

A well-crafted dispute resolution clause can help your business reduce exposure to costly and time-consuming legal actions that distract from your core operations.

The following example from IBM highlights that both parties should not be quick to take legal action to resolve disputes, disagreements, and claims. It also establishes a two-year limit on bringing legal action (unless required by other laws):

The New York Times takes a different approach. Its dispute resolution clause establishes that most disputes will be settled by binding arbitration. Accepting its Terms of Service means users forego the right to trial by jury. They also cannot participate in a class arbitration or a class action in which a group works together to sue an organization:

Age-limitation clause

Age limitation clauses are essential for any business that offers access to age-restricted goods or services. Websites that offer alcohol, tobacco, or other age-restricted products may display a message like this one posted on The Bar:

Many digital service providers that do not specifically offer age-restricted services should also evaluate whether they would benefit from an age-limitation clause or need one to comply with new laws.

Voluntary age limitations: Instagram is an example of a company that imposes an age limitation, although it is not explicitly required by law. The federal Children's Online Privacy Protection Rule (COPPA) puts additional requirements on providers of online services directed at children aged 12 and under.

Instagram's Terms of Use stipulate that users must be 13 or over, and it uses AI tools for age verification:

New legislation: New laws may require businesses to impose age limitation clauses or include additional parental controls. For example, Texas House Bill 18, also called the Securing Children Online through Parental Empowerment (SCOPE) Act, partly went into effect on September 1, 2024. It requires strict age verification for minors and may mean your business needs to obtain parental consent before minors can use your website or app.

Acceptable use clause

This type of clause is known by various names, including rules of use, prohibited use, or acceptable use. It allows you to establish acceptable behavior on your website or app and action your business will take against violators. This could range from deleting offensive comments or content to removing users from your platform.

Some commonly prohibited behaviors include:

• Using your platform for illegal activities
• Choosing an offensive user name or avatar
• Impersonating someone else
• Harassing of other users
• Posting violent, discriminatory, hateful, abusive, or sexually explicit content/comments
• Sharing the personal data of other users

An acceptable use clause could protect your legal rights by demonstrating that you:

• Defined behavior that was unacceptable
• Took steps to prevent the misuse of your platform
• Informed your users of their obligations while using your service

The excerpt from eBay's User Agreement shows that these clauses must establish basic rules before explaining finer details:

Copyright infringement clause

Websites and apps that allow users to upload user-generated content need robust acceptable use clauses to limit their exposure to copyright infringement claims. The US's Digital Millennium Copyright Act (DMCA) can hold website owners responsible for the content its users upload.

A copyright infringement clause can help website owners avoid liability by explaining how it handles material that violates copyright law.

The video-sharing platform Vimeo's Terms of Service includes a clause linking to its more comprehensive Copyright Policy, explains how to report non-compliant content, and sets out its right to terminate the accounts of users who "persistently infringe" its terms:

Limitation of liability/disclaimer of warranties

A limitation of liability clause (sometimes called a "disclaimer of warranties" or "no-responsibility disclaimer") could reduce your exposure to liability if a user of your website or app suffers harm. Liability refers to legal responsibility for damages, such as personal injuries, loss of reputation, or damage to a business.

For example, a limitation of liability clause can protect a website that posts articles on personal finance from being sued if a reader uses information from an article to make personal financial decisions that do not work out.

In its Terms and Conditions below, Forbes includes an "Indemnity/Limitation of Liability" clause to protect itself from potential legal claims arising from the use of its website:

Account termination clause

In the account termination clause, let your customers know how to close their accounts and any rights they have to refunds. This clause also establishes your rights to terminate the accounts or subscriptions of users who violate your Terms and Conditions agreement.

The example below from Grammarly uses simple language to explain users' cancellation rights and entitlement to refunds:

In the next paragraph, Grammarly explains the circumstances under which it reserves the right to terminate user accounts:

Ensuring Your Terms and Conditions Are Legally Binding

There is no benefit to having a great Terms and Conditions agreement if it won't stand up in court. To avoid this, ensure your T&Cs meet the following criteria.

Conspicuous presentation

Put your customers on notice by presenting your T&C agreement clearly. Ensure they have had a chance to review it and make them take affirmative action to accept it.

Be sure to include:

• A bold hyperlink on a contrasting background that links to your latest T&C agreement
• Clear instructions about the action that constitutes acceptance of the agreement (such as making a purchase or clicking a button)

Etsy's registration form below makes it clear that clicking Register means you accept its Terms of Use:

Maintain records

To prove your customer accepted the Terms and Conditions, you must keep accurate records in the back end of your system. Make sure it tracks the version of the T&C agreement they consented to and identifiable data, such as IP addresses or device details.

Avoid browsewrap

Browsewrap is more user-friendly, but it is not the best choice for your business as these agreements can be difficult to enforce when disputes arise.

Summary

It may seem like the clauses you need to include in a Terms and Conditions agreement are endless. However, it is worth creating a robust agreement that ensures you comply with current laws, limits your exposure to legal risks, and allows you to focus on what your business does best.

Avoid legal jargon and use easy-to-understand language that lets your customers know where they stand. Make sure all the terms of your agreement are legally enforceable, and schedule regular reviews to keep up to date with new laws.