What are Product and Service Warranties?
Written By Ethan King
Picture an overcast 70 degree Sunday afternoon, and you take out your brand new lawn mower to cut the grass. You turn the key, but it does not start. You check the gas and the oil, all good there so what is wrong? You call the store where you purchased the lawn mower, and they tell you they will send someone out to take a look as a part of your 1 year warranty. There was an issue with something technical, but you do not care because they fix it for free. Now your lawn mower works perfectly and you didn’t have to pay for the fix.
So What are Warranties?
Warranties are legally binding assurances that a product or service meets certain quality and performance expectations. In the case above, with the lawn mower you expect it to start and cut the grass in a safe and effective manner. But, what else should be in a warranty clause?
Questions you want to have answered in your warranty clause:
1. What is the Length of the Warranty
Specify the exact length and what triggers a warranty claim and remedy. Also consider whether the warranty period will restart after the remedy has occurred.
2. Who Pays for Warranty Work
Consider who pays for the repairs/remedy, including items like labor, materials, and damages caused by the defective product or services.
3. Who Performs the Warranty Services
Determine who performs the repairs or replacements is it the: the original supplier, an authorized service provider, or a third party. You may also want to specify where the repairs or replacements take place.
4. Are there any Implied, Express Warranties, or Disclaimed Warranties
Implied warranties such as fitness for a purpose will likely apply unless they are specifically disclaimed. Express warranties are what they sound like: explicitly stated as a warranty in the contract. Using our lawn mower example above, an express warranty could be “cuts grass at speeds of up to 10 MPH.”
5. What are the Scope, Specifications, and Exclusions
Clearly define the quality and performance of the product or services, and the proper way to engage with the product or services. Also, provide what isn’t covered in the warranty such as misuse, unauthorized modifications, and normal wear and tear. For products specifically, you should also consider whether you are offering a full or limited warranty.
Full warranty: The duration of implied warranties is not limited, the warranty coverage is available to any owner of the product, not just the initial purchaser; the costs associated with the defective product are covered; the customer has a choice of whether they want to receive either a full refund or a replacement product if the defective product cannot be repaired; and all customers need to do is provide notice of the defective product to the warranty provider, no other action is required.
Limited Warranty: Generally carves out a specific amount of time for coverage, and provides repairs, replacements, and refunds only if specific items identified in the limited warranty occur, or in some cases, do not occur.
6. How are Claims Reported
Determine how a claim by a customer needs to be reported. Consider how quickly they need to report the problem in order to receive a remedy under the warranty provision.
Pro tip: Under US consumer law, if a Seller decides to offer warranties on consumer products, the warranty must be written and clearly state whether the warranty is “full” or “limited”; clearly defined and explained in an easy to understand manner, and made available to the consumer pre-sale; and not disclaim implied warranties unless the warranty was identified as limited and you are shortening the duration of the warranty for the product to be of a certain quality or performance expectation.
Final Thoughts
As a seller of products or services, think about what types of warranties you can offer, and what bandwidth do you have to provide repairs, replacements, or refunds should something not work as you advertised it.
Ethan King is a business lawyer experienced working with start-ups, nonprofits, consulting firms, and mid-large size businesses in a variety of transactional matters. His experience working in-house provides him with a unique perspective to analyze risk, consider the regulatory environment, understand business strategies, and break down complex legal issues into simple terms.
Ethan has negotiated numerous types of agreements, including, but not limited to consulting agreements, products, software, engineering services, influencer agreements, profit sharing, and more. His office can be reached at (303) 736-9634
