Many businesses and individuals use the terms ‘guarantee’ and ‘warranty’ interchangeably. They think the meaning is the same thing, without realising they are two very different concepts.
Why do you need to know?
If you have a business that sells goods or services, it is important to understand the difference between a guarantee and warranty in order to comply with your liabilities and obligations under the law. The law says you must offer one but not necessarily the other. So which one do you need to provide to your customers?
What is a guarantee?
A guarantee is a basic set of rights under Australian Consumer Law that a purchaser is entitled to when buying goods or services – including second hand! It is a legal right consumers have to things such as repairs, replacements and refunds when they do not meet certain standards such as safety, free from defects, acceptable appearance, do the job they are advertised for (or reasonably expected to do) and match their advertised description.
For example, when a business sells a refrigerator to a customer, there is a Consumer Law guarantee that the goods are of acceptable quality. If the refrigerator motor then burns out in four months’ time, the business would be expected to refund, repair or replace the ‘faulty’ product.
There are exceptions, but generally guarantees apply to almost all sales of goods and services made by a supplier or manufacturer from January 1, 2011.
What is a warranty?
A warranty is a voluntary assurance or promise made by a provider of goods or services to a consumer. These are ‘extra promises’ made by a supplier or manufacturer.
Common types of warranties include an express warranty, a manufacturer’s warranty and an extended warranty. You might make an express warranty on your advertisement or your website and not even realise it! For example, you might be selling a chair that will hold 150 kilograms. This is an express warranty about what the product does.
It is not mandatory under the law for a business to provide a purchaser with a warranty. However, once you give a warranty, the warranty becomes a right enforceable under the Australian Consumer Law.
So what’s the difference?
As you can see, the main difference between a guarantee and a warranty is the source of the obligation. Guarantees are required by law and form a minimum set of standards applicable to almost all sale transactions of goods and services in Australia. You cannot exclude them by agreeing a private contract or having a “no refund” policy.
On the other hand, warranties are promises made voluntarily by the seller to the buyer in addition to and beyond the legislated guarantee. So, it is completely up to you and your business whether you want to give any warranties to your customers for any goods or services you are selling.
But do remember, once you give a warranty, you have to honour it and the warranty becomes enforceable under Australian Consumer law.
Puffery or promise?
If warranties are additional ‘promises’ made by a seller to a consumer about a product or service, when does it become a promise versus puffery for advertising or promotional purposes?
It is not uncommon for adverts to overstate or dramatise the effect of things they are selling. In some instances, it would be unreasonable for a consumer to actually take these statements to be true. For example, the famous catchphrase “Red Bull gives you wings” cannot be considered to be a warranty that the drink will in fact make you grow wings!
In some cases, it’s obvious whether a particular statement made in an advertisement is mere puff or a warranty.
Yet where a statement in an advertisement relates to the effectiveness or intended use of a product, and starts to resemble a genuine promise made by the advertiser, then the distinction can be a fine one. The consumer may well find him or herself with enforceable rights in relation to their product because of a particular statement about the product made by the advert.
Know your rights and responsibilities
You can see then why understanding the difference between a warranty and guarantee is very important for businesses. And can be confusing!
Any business that sells goods or services needs to understand what their obligations are under the law. The business must honour the guarantees applicable to their product, as set out by consumer law and must also understand that what they say in their advertisements or on their websites could be interpreted as additional warranties they did not anticipate.
When you set up your online business, ensure you know exactly what you are stating, promising and advertising about your products and services. Don’t be caught out – or you might wish you really did have wings!