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A lock in contract and a no lock in contract affect what you can and can’t do once you sign the agreement.
When utilised correctly, either type of contract can aid in upholding the interest of the invested parties. In order to properly take advantage of their terms, it’s important to have a solid understanding of the fundamentals. Keep reading to learn more!
What Is A Lock In Contract?
A lock in contract is where the parties to the contract are bound together strictly. The service or goods being provided will depend heavily on a certain criteria being fulfilled. The purpose of this usually fulfils the desire to keep the parties closed in for the duration of the relationship, preventing the other party from seeking the same services elsewhere.
| Example An energy company provides solar panels. However, the panels are part of a lock in contract. The terms of the contract state that in order to attain and keep the solar panels, the purchaser must allow the company to be their electricity provider. Should they choose another provider for electricity, the solar panels will need to be relinquished. |
What Is A No Lock In Contract?
A no lock in contract is the opposite of a lock in contract. These contracts don’t bind the parties as strongly as a lock in contracts. Instead of having strict conditions, the parties are able to explore alternative options and can choose to opt out of the contract if they choose to do so with minimum or no consequences.
| Example A cleaning service allows clients to sign up for their program for 6 month or 12 month contracts. During this time, if the clients no longer wish to be bound by the agreement, they are free to cancel the agreement and do not need to pay the fee for the remaining months left on the contract. Here, the parties were bound by a legal agreement. However, they were not ‘locked in’ making this an example of a no lock in contract. |
Which One Is Better For My Business?
For businesses, lock-in contracts can provide more security and stability as there’s a guarantee that customers will be staying in a no lock-in contract.
However, customers might like the idea of a no lock in contract so they can keep their options open. Usually, if customers are happy with a business and there are no better offers, they are more likely to stay with their current provider.
Both lock in contracts and no lock in contracts have their pros and cons. Deciding which one to go for will depend entirely on your individual circumstances.
There’s no one contract type that will be better for all businesses, so you’re better off chatting with a legal expert to see what might suit your needs better.
No matter what kind of contract you choose to go with, it’s important to take steps to avoid unfair contract terms.
Unfair contract terms are terms that cause detriment to the other party and create an imbalance. They are a breach of Australian Consumer Law (ACL) and if a contract is found to contain terms that can be considered unfair, courts can make that particular clause or the entire contract (depending on the circumstances) void.
Therefore, when you’re considering what terms to put in your contracts with customers, make sure you’re being fair and following through on all your ACL obligations. At Sprintlaw, we offer an ACL Consultation package to help your business protect itself.
Is This Different To A Lock-Out Agreement?
Yes, a lock-out agreement is completely different to a lock in contract and a no lock in contract.
Lock-out agreements have more to do with the stages prior to signing the main contract.
A lock-out contract is where the parties negotiating an agreement cannot liaise, talk or negotiate with another party while their current agreements are taking place.
Usually when contract negotiations are set to take an extended period of time or involve a major purchase, parties like to have a lock in contract in place to protect their interest.
Get A Contract Lawyer
Whether you choose to get a lock in contract or a no lock in contract, the most important thing about any kind of contract is having well-written terms.
The terms of a contract can look out for the interest of both parties and help avoid conflicts or misunderstandings down the line.
A legal expert that is experienced in preparing contracts knows how to write up such agreements and can look out for things you may not be able to see. Contact our expert contract lawyers at Sprintlaw for legal help – whether you need contracts reviewed or redrafted, we’ve got you covered.
Key Takeaways
Lock in contracts and no lock in contracts have their own benefits and downsides. Essentially, it’s up to you to decide which one may work better for your business. To summarise what we’ve discussed:
- A lock in contract binds both parties together with certain terms and conditions
- No lock in contracts allow parties to explore other options while still being in a legally bound agreement
- Some business may prefer the stability and security of a no lock in contract. However, no lock in contracts might attract the interest of more customers
- No matter what kind of contract you go for, it’s important to follow your obligations under the ACL and avoid unfair contracts terms
At Sprintlaw, our expert contract lawyers can help you with your legal needs.
If you would like a consultation on your business’ contracts, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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