Building a warranty clause

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What is a warranty clause?

A warranty clause is used to make certain promises or provide certain guarantees to the other Party relating to, for example, the object under the Agreement.

Components of a warranty clause

Type of warranty

The type of warranties to include will depend on the type of the Agreement.

Here are a couple of examples of warranties that you will find in commercial contracts:

Services warranties

Warranties for Services will be promises generally providing how the Provider must perform the Services.

For example, the parties may agree to reference industry standards or other terms that have been interpreted by case law, such as that the services are to be performed in a timely, professional, and skilful manner.

You can also include more specific Services warranties. For example, the Provider warrants that all personnel will have at least 5 years of relevant experience in providing the Services.

Product warranties

Warranties for products and product deliverables should usually address requirements related to the products or product deliverables, such as quality, condition, functionality, quantity, or performance.

Software warranties

Software warranties relating to the licensing of Software differ from where Software is developed for a customer. When you licence Software, typical warranties will include warranties relating to viruses, ownership and non-infringement. When you develop Software, the typical warranties may include warranties providing that the Software will be in accordance with the Specifications and that the developed Software will not include certain types of open-source code.

SaaS warranties

With SaaS warranties, you want to include warranties that the SaaS will perform in accordance with the Documentation, there is no infringement of third party IPR rights and that it is free of viruses.

Data protection warranties

Your data protection warranties will generally refer to the obligations created under the data privacy and data security provisions.

 

TIP!

Do not put all the warranties together under a single section. You often want to provide different remedies for different warranties, and you may also want to provide different liability caps for breaches of different warranties.

Available remedies

What happens when there is a breach of warranty?

The available remedies will differ depending on the type of warranty. For example, if there is a breach of a Product warranty, the possible remedies may be:

  • replace the product; or
  • repair the product.
 

If there are multiple available remedies, which Party decides which remedy to use?

Often the source of disputes. Make sure you clearly stipulate who may choose which remedy will be used.

Who pays for what?

For example, if the warranty relates to a Product, who must pay the costs to get the product back to the manufacturer?

What happens if it is not possible to implement the remedy?

Typically the Customer will be refunded.

Warranty period and notifications

How long is the warranty valid?

Different warranties may require different warranty periods. For example, warranty periods relating to Products may be longer than those relating to Software. 

From which date will the warranty period be calculated?

Does the period start from the delivery date or acceptance date? It is also possible to provide that the warranty period will start once the Product is fully commissioned.

Are there any notification requirements?

For example, the Customer must notify the Provider that there is a defect before the end of the warranty period.

Exclusions 

Are there any situations that need to be excluded from the warranty? For example, you provide a warranty stating that the Software will perform according to the Documentation.

You want to exclude warranty claims where the Customer modified the Software and wants to claim under the performance warranty. Generally, the wording will only exclude a warranty claim to the extent that the Software was excluded to the extent that the Customer modified it.

Disclaimers 

The devil is in the detail.

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