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Client tied in to accountant. Unfair contract?

Client tied in to accountant. Unfair contract?

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I have just picked up a new limited company client from another local accountant (AAT).

The client has told them that they wish to leave and to expect the usual professional clearance letter from us. However the accountant has got a bit upset and has pointed to a clause in their letter of engagement to the effect that the engagement automatically renews each year and if they don't give notice within 2 months after their year end date then it automatically renews for a further 12 months. So basically they are tied in for a further year.

I have never come across a firm of accountants include terms like this before. It strikes me that it is unethical but reading through the AAT code of ethics it is silent.

Anyone know if this sort of thing is enforceable?

Replies (38)

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By johngroganjga
06th Feb 2016 13:13

It's a legal question, but as an accountant I have never come across another firm trying to apply such a contractual term.

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By qhas
06th Feb 2016 14:04

AAT
It's only a member of a third grade Institute that could conjure up such a shameful restrictive clause in their contract,

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By tom123
06th Feb 2016 15:19

Bit harsh on the AAT

qhas wrote:
It's only a member of a third grade Institute that could conjure up such a shameful restrictive clause in their contract,

A little bit harsh on the AAT qhas..

Anyway - l can think of several commercial contracts that 'auto renew' - anyone tried to get away from Dunn & Bradstreet, for example.

Running businesses is for grown ups - so the moral generally is to read what you sign.

 

Having said that, as a 'client' I have never come across that from the external accountants I have used.

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By cheekychappy
06th Feb 2016 14:08

I've previously had a client that was in a similar contract. The practice was anACCA practice, like my own.
The Unfair Contract Act doesn't apply to businesses.

From recollection, the contract stood. It is a legally binding contract

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By petersaxton
06th Feb 2016 15:27

Obligations

What does the accountant have to do and what does the client have to pay in this period?

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By qhas
06th Feb 2016 15:32

Obligation

petersaxton wrote:

What does the accountant have to do and what does the client have to pay in this period?


Client pays off the balance of the 12 month charge one presumes ?
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By jon_griffey
06th Feb 2016 16:30

Letter of engagement

 

Here is what the letter of engagement says:-

 

"Our fixed fee service is for a period of 12 months and this will automatically renew under the same terms, should you wish to leave our fixed fee service for whatever reason, the fees are payable to the end of the contract and as long as your obligations regarding record keeping have been met we will endeavour to complete the services contracted for.

Should you stop the fixed fee service and not provide us with accurate online accounting records we will request payment to the end of the contract and you will not be entitled to a refund of any monthly fees already paid.

Our fixed fee contract will commence two months after your accounting year end."

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By cheekychappy
06th Feb 2016 16:43

If that's what they've agreed to, then there isn't much they can do, is there?

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By Tim Vane
06th Feb 2016 19:31

If you have a full copy of the contract read through it carefully and hopefully you'll find some condition that has been breached. It may only be a small thing, but it could give you an opportunity to break.

We had a similar issue a while back, where a client had contract with local printing firm that we advised them was overpriced. The contract had a similar auto-renewal clause. The contract was also stated that the supplier had to provide monthly statements listing the work completed. The supplier had at some point switched to quarterly statements, and so the client told the supplier that they considered them to be in breach and used it as grounds for termination. I very much suspect that the argument may not have stood up to legal scrutiny (the supplier was not given a chance to rectify the issue for instance), but it muddied the water and when the client stopped payments the supplier did not attempt to enforce full amounts due under the renewal clause.

Maybe the previous accountants have slipped up on some small aspect of their obligations.

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By petestar1969
09th Feb 2016 11:12

Well,,,,

Accountants are often criticised for not being "commercial" and not running their business as a business.

It looks like these AAT registered guys, whoever they may be, are running their business as a business.

As has been said already a contract is a contract and if the client signed up to it they are almost certainly bound by it.

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By johngroganjga
09th Feb 2016 11:26

Commercial

petestar1969 wrote:

Accountants are often criticised for not being "commercial" and not running their business as a business.

It looks like these AAT registered guys, whoever they may be, are running their business as a business.

As has been said already a contract is a contract and if the client signed up to it they are almost certainly bound by it.

There is nothing commercial about having a contract term that forces clients to pay you to do work they don't want you to do.

It's not commercial because it will alienate all clients affected by it, and they will of course speak to other potential clients.  So ultimately it will end in tears.

Good business management for accountants is about attracting clients who want you to do work for them, and making sure that they pay you properly for the work you do.

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By maasrw
09th Feb 2016 11:51

Call hsi bluff - and complain to the AAT
Under the Unfair Contracts Act in respect of a business contract it is for the courts to decide what is reasonable. Does the contract contain a penalty clause? If not the accountant needs to show that has suffered loss if the client simply walks away from the contract..If he can use his staff on other things his loss s probably limited to the profit he would have made on the job. Whether he will want to go to court and disclose that, so that it can be publicised locally, is questionable. Furthermore, he may have suffered no loss if he can replace the client.

I think this is an ethical issue more than a legal one. A client is entitled to choose who should represent him. You cannot insist on keeping a client who has lost confidence in you. I think that the questioner should encourage the client to complain to the AAT. I also think that, even if the client breaches the contract, the accountant has no right to withhold his books and records and thus prevent him from meeting his statutory obligations for the current year, and no right to ignore the normal professional niceities. I would be very surprised if the AAT is not prepared to sort this out.

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By cheekychappy
09th Feb 2016 12:10

I do not think the contract is unreasonable or unfair.

The client, before signing the contract, had opportunity to negotiate the contract. But they didn’t and therefore entered a binding contract.

Whilst it isn’t a common term for accountants to impose, I don’t think the term in itself is unethical.

If the client does not have faith in them, they can forfeit the contract by paying the fees.

I don’t think I would want to get involved in complaining to professional bodies, especially when I don’t see any grounds to do so. I also wouldn’t advocate the attitude of “see how far they will take it”. It may cause reputational damage to the accountant, but who would want to deal with a company that tries to wriggle out of its contractual obligations?

The client will have learned a lesson from this, and this will hopefully prevent them from entering contracts in the future that would prove much more costly than this one.

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By Paul Donno
09th Feb 2016 13:27

Not the full story here by Jon Griffey!!!

I am the accountant that Jon Griffey has mentioned and our contracts are fair for the services that we offer and the client was fully aware of its content.  What Mr Griffey has failed to tell Accounting Web and disrespecting my profession is that whilst the "clause" in our contract is legally enforceable we did not enforce the contract and have allowed the client to move on without any issues or payment of the contract in full which we could insist on.  Also what Mr Griffey failed to say is that on the day his letter was received (yesterday) from his firm that we replied straight away with full clearance and documentation to ensure a very smooth transition.  I find that airing this contractual issue in public completely unprofessional, especially when we have acted with integrity and in the very best interests of the client.

 

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By MissAccounting
09th Feb 2016 14:46

Odd

pauldonno wrote:

I am the accountant that Jon Griffey has mentioned and our contracts are fair for the services that we offer and the client was fully aware of its content.  What Mr Griffey has failed to tell Accounting Web and disrespecting my profession is that whilst the "clause" in our contract is legally enforceable we did not enforce the contract and have allowed the client to move on without any issues or payment of the contract in full which we could insist on.  Also what Mr Griffey failed to say is that on the day his letter was received (yesterday) from his firm that we replied straight away with full clearance and documentation to ensure a very smooth transition.  I find that airing this contractual issue in public completely unprofessional, especially when we have acted with integrity and in the very best interests of the client.

 

This all seems a bit odd to me...

Why has the OP gone out of their way to post on here questioning a clause in an engagement letter if you sent over all the necessary paperwork and didnt persue the remainder of the "contract"?

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By cheekychappy
09th Feb 2016 15:02

Presumably

MissAccounting wrote:
pauldonno wrote:

I am the accountant that Jon Griffey has mentioned and our contracts are fair for the services that we offer and the client was fully aware of its content.  What Mr Griffey has failed to tell Accounting Web and disrespecting my profession is that whilst the "clause" in our contract is legally enforceable we did not enforce the contract and have allowed the client to move on without any issues or payment of the contract in full which we could insist on.  Also what Mr Griffey failed to say is that on the day his letter was received (yesterday) from his firm that we replied straight away with full clearance and documentation to ensure a very smooth transition.  I find that airing this contractual issue in public completely unprofessional, especially when we have acted with integrity and in the very best interests of the client.

 

This all seems a bit odd to me... Why has the OP gone out of their way to post on here questioning a clause in an engagement letter if you sent over all the necessary paperwork and didnt persue the remainder of the "contract"?

 

As this was posted on Saturday, the clearance letters were probably sent off on Friday, which would coincide with Paul receiving them yesterday morning.

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By cheekychappy
09th Feb 2016 13:24

Well this was unexpected.

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By Jmcelhinney
09th Feb 2016 19:11

It may well be that Mr Griffey was wondering if the contract was enforceable in order that he could introduce it into his own letters of engagement, but didn't want to pay any legal fees to find out ! Or am I merely being sinical ! - or even cynical !

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Quack
By Constantly Confused
09th Feb 2016 15:28

Oww

Jmcelhinney wrote:
Or am I merely being sinical !

Owww that actually causes me serious sicological pain!

;)

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By Mr_awol
09th Feb 2016 14:14

Well done Paul for coming out an explaining/defending your position.

I'm not a fan of fixed fees generally - although I do quite like standing order payments.  If I did decide to move to fixed fees though I'd almost certainly adopt your approach.

The reason would be that (regardless of whether timesheets are completed - I understand that some fixed fee providers don't) I imagine it could be difficult to calculate/substantiate how much of a client's fixed fee was returnable - if, for example, they had made a few phone calls and had a brief meting with you.

Personally, even for standing order clients, I am able to review my time ledger, raise an invoice, and refund any excess left on my sales ledger.  If the agreement had been a fixed fee service for accounts without additional charges for 'standard' queries, id be forced  refund the whole lot and/or rely on the client playing fair.

Your contract allows for you to make a fair assessment on whether any work has been carried out (or no) and refund a suitable surplus.  If the client kicks up a fuss you can point out that you're contractually entitled to keep the lot and that you're actually doing them a favour.

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Red Leader
By Red Leader
09th Feb 2016 14:38

couple of questions

1) Why did the client change?

2) Any response to Jon's comment "However the accountant has got a bit upset and has pointed to a clause in their letter of engagement to the effect that the engagement automatically renews each year".

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Hallerud at Easter
By DJKL
09th Feb 2016 14:51

Not sure

Red Leader wrote:

1) Why did the client change?

2) Any response to Jon's comment "However the accountant has got a bit upset and has pointed to a clause in their letter of engagement to the effect that the engagement automatically renews each year".

Not sure we should ask these questions, Paul has given his response .

Point 1 is surely the client's to disclose not his previous/current agent, are we inviting him/her  on here like one of these dreadful TV shows where it is revealed that X cheated on y with brother z?

Point 2 is possibly again the client's interpretation maybe communicated to the OP; unless the OP was in direct contact by phone/meeting with Paul it has to be hearsay.

Methinks maybe we ought to let sleeping dogs lie, the position appears resolved.

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By MissAccounting
09th Feb 2016 15:15

Still seems odd? Why has the issue even came about if the previous advisor didn't actually get "a little bit upset" and inform the outgoing client that they owed them up to 12 months worth of fees?

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By jon_griffey
09th Feb 2016 15:22

Get off your high horse please Paul

The point of the post was merely to gather views from other practitioners as to whether (anonymised) contractual wording is enforceable. I have not at any stage mentioned any names or made any disparaging comments. Others here have understandably been less generous.

It may or may not be that the clause is enforceable but personally I don't consider it 'fair' to expect a windfall from clients who have the effrontery to want to take their business elsewhere.

You put stuff like that in letters of engagement and you are asking for flak.

Far from having "allowed the client to move on without any issues" it is self-evident this whole business only came to light because you initially sought to hold him to the contract.

For the record, having backed down the next day you have indeed provided a very prompt response which is much appreciated. But speed of handover is not the issue.

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By cheekychappy
09th Feb 2016 16:34

Big Boy

jon_griffey wrote:

The point of the post was merely to gather views from other practitioners as to whether (anonymised) contractual wording is enforceable. I have not at any stage mentioned any names or made any disparaging comments. Others here have understandably been less generous.

It may or may not be that the clause is enforceable but personally I don't consider it 'fair' to expect a windfall from clients who have the effrontery to want to take their business elsewhere.

You put stuff like that in letters of engagement and you are asking for flak.

Far from having "allowed the client to move on without any issues" it is self-evident this whole business only came to light because you initially sought to hold him to the contract.

For the record, having backed down the next day you have indeed provided a very prompt response which is much appreciated. But speed of handover is not the issue.

 

Jon, is your client a grown up?

If so, they should not be entering into contracts they have no intention of abiding by.

You've not come out of this particularly well. There's a lot to be said for anonymity :-)

 

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By Mr_awol
10th Feb 2016 10:32

Ethics

jon_griffey wrote:

The point of the post was merely to gather views from other practitioners as to whether (anonymised) contractual wording is enforceable. I have not at any stage mentioned any names or made any disparaging comments. Others here have understandably been less generous.

It may or may not be that the clause is enforceable but personally I don't consider it 'fair' to expect a windfall from clients who have the effrontery to want to take their business elsewhere.

You put stuff like that in letters of engagement and you are asking for flak.

Far from having "allowed the client to move on without any issues" it is self-evident this whole business only came to light because you initially sought to hold him to the contract.

For the record, having backed down the next day you have indeed provided a very prompt response which is much appreciated. But speed of handover is not the issue.

Actually you questioned whether the clause was ethical as well as enforceable, took the time to research the AAT's ethical guidelines, and made reference to the governing body of the (at the time anonymous) other advisor - as if that were in some way relevant.

I've already stated that I'm not a great fan of fixed fees but if people are going to offer them then it makes sense that they will not refund all (or arguably any) of the monthly 'subscriptions' charged prior to a client changing accountant.  You seem to be confusing the issue with a traditional standing order payment on account in which case I'd agree with you.  That's not the case here though.

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By North East Accountant
10th Feb 2016 09:20

Try it with your landlord

Try going to your landlord and saying you no longer want the building and want to be let off the remaining term of your lease.

 

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By Scott Gnat
10th Feb 2016 10:16

Unfair contract

It is an unfair clause in the engagement letter. What happens when a client "outgrows" his accountant and requires specialised advice that his current accountant cannot provide. Surely the client must be free to move to get the advice he requires.

That clause should never be in an engagement letter for professional services.

 

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By JimFerd
10th Feb 2016 10:23

I think the OP has posted a completely reasonable question, to which the other parties were anonymous.

If a client tried approached me to act as their agent, and I found out that their previous accountant attached similar onerous terms to the contract as this that the client clearly wasn't aware of, I'd be equally frustrated.

 

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Stepurhan
By stepurhan
10th Feb 2016 10:31

Awareness

JimFerd wrote:
If a client tried approached me to act as their agent, and I found out that their previous accountant attached similar onerous terms to the contract as this that the client clearly wasn't aware of, I'd be equally frustrated.
Note the part I have highlighted. The clause in question was presumably in the contract that the client signed. As others have said, the client should have read that contract, and hence been aware of the term. If they found it objectionable, they should have asked for it to be removed, or chosen another agent at that time. They presumably did neither. I think you will find "I didn't read the binding contract I signed" is not a winning argument in court.

Whether it would be deemed an unfair contract term in court has yet to be proven. The arguments that the clause is wrong simply because a client might outgrow a practice or require specialist advice don't stand up. It would be a foolish practice that insisted on keeping a client that they were not in a position to service properly. That would be a quick route to a negligence claim that would likely far outweigh the fees obtained.

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By JimFerd
10th Feb 2016 10:26

On a more light-hearted note - Perhaps we should all get Wonga to draft our engagement letters - they are legally enforceable too!

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By JimFerd
10th Feb 2016 10:47

I agree that the contract is fair, and I'm also sure it's also legally enforceable by the outgoing accountant.

I also fully agree that the client should have been aware this clause and fully read through the engagement letter before signing it.

My point was just that the client didn't seem to be aware of this clause at the point if seeing the new accountant. If he was he wouldn't have approached him.

The probable reason that he wasn't aware of it, is that it's not the norm to have such a clause in an engagement letter.

We all know that the vast majority of clients wont even read half of the engagement letter, they'll just sign it and send it back.

 

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Stepurhan
By stepurhan
10th Feb 2016 10:50

Your point is?

You agree that the contract is fair and legally enforceable. You also agree that the client should have read the contract as well.

So what exactly is your point? Given the points above, the reason the client wasn't apparently aware of the clause is irrelevant.

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By Maslins
10th Feb 2016 11:02

My 2 cents, we all regularly tick the "I confirm I've read the 5,000 page Ts&Cs" box when buying something. They're so ridiculously long winded, combined with the fact we have to agree to buy the product, means we realistically have no choice.  Yes you could buy from somewhere else, but try finding a non-tiny supplier that doesn't have hefty Ts&Cs.

Therefore many, if not all of us, regularly agree to terms we haven't read, on the assumption there won't be anything unreasonable in there.  I don't see this as any different.

Re the clause itself, I personally do think it's unfair.  I agree a client shouldn't expect a refund of any fees when they leave, but that's different to insisting they continue to pay for another X months when you're no longer providing the service.

The legal profession has become a joke because of ridiculously long contracts where 99% of it is standard guff.  Only solution I see is that there be a standard set of commonly agreed Ts&Cs, and perhaps companies are allowed to have no more than a handful of one sentence clauses they feel customers specifically do need to be aware of.  Then the punter can be confident there's nothing malicious in subsection 28B of clause 552, and the supplier can make a handful of things crystal clear, which the client agrees to and should very much be legally binding.

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By Duggimon
10th Feb 2016 11:32

No legally enforceable

Maslins wrote:

My 2 cents, we all regularly tick the "I confirm I've read the 5,000 page Ts&Cs" box when buying something. They're so ridiculously long winded, combined with the fact we have to agree to buy the product, means we realistically have no choice.  Yes you could buy from somewhere else, but try finding a non-tiny supplier that doesn't have hefty Ts&Cs.

Therefore many, if not all of us, regularly agree to terms we haven't read, on the assumption there won't be anything unreasonable in there.  I don't see this as any different.

Re the clause itself, I personally do think it's unfair.  I agree a client shouldn't expect a refund of any fees when they leave, but that's different to insisting they continue to pay for another X months when you're no longer providing the service.

The legal profession has become a joke because of ridiculously long contracts where 99% of it is standard guff.  Only solution I see is that there be a standard set of commonly agreed Ts&Cs, and perhaps companies are allowed to have no more than a handful of one sentence clauses they feel customers specifically do need to be aware of.  Then the punter can be confident there's nothing malicious in subsection 28B of clause 552, and the supplier can make a handful of things crystal clear, which the client agrees to and should very much be legally binding.

I'm pretty sure it already works in that regard, insofar as any non-standard term hidden deep in a massive document that the customer could not reasonably have been expected to read in detail is not legally enforceable, regardless of whether the customer signed off. Part of our statutory rights as consumers, I would expect the same is not true of business contracts.

This is based on my contract law module from the dim and distant past as a student though so take it with a grain of salt!

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By JimFerd
10th Feb 2016 11:07

The point is that we could put anything in our engagement letters, and the clients would still sign them due to not reading or understanding them.

We have guidelines as to what we can have in there to help protect the parties to the contract though.

The OP was simply questioning as to whether this sort of thing can be included in a contract - which in my opinion is a reasonable question.

I guess it's similar to asking the question "can my employer prevent me from working for a competitor firm for 10 years? It's in my contract that I can't"

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By petersaxton
10th Feb 2016 11:48

Similarly with newsletters

Accountants will send out newsletters and they mention some relevant item that supposedly absolves them from being negligent but I don't think it does given the length of some newsletters.

I would send out a separate email if I wanted a client to act on it.

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By petersaxton
10th Feb 2016 11:50

Deadlines

Having said the above, a lot of accountants put deadlines in newsletters but I assume that they will also send an individual email to a client highlighting the deadline.

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