Leasing a pair of jeans or a sustainable roof: Do consumers have any leverage?

Article

With the circular economy looming on the horizon, increasingly many businesses are offering products as services. For consumers it means they have a right of use rather than a right of ownership. But what happens if the provider of your roof goes into liquidation? Tilburg lawyers found out what the law says on the subject in a special edition on servitization of the Weekblad voor Privaatrecht, Notariaat en Registratie.

Servitization, also referred to as verdienstelijking in Dutch, is a business model whereby the delivery of products is supplemented or entirely replaced by a service. For instance, a customer with a smart TV can purchase software updates for additional functionality. If you lease your jeans, you periodically get a completely new pair of trousers; and if you subscribe to a software package, you always receive the latest updates.

Offering a product as a service isn’t a new thing, but there is growing interest in it because it means less waste and a better use of resources. Of course, it is also a very attractive way to enhance customer loyalty. But are consumers sufficiently protected if they can only rely on a right of use rather than on a right of ownership?

Limited

The servitization of society poses challenges to contract law, says Professor of Private Law Stéphanie Van Gulijk, who specializes in special contracts. According to Professor Reinout Wibier, who knows everything about property law, insolvency and finance, contracts based on service provision rather than on property rights are interesting from a property and insolvency law perspective. The question is what the legal implications are if a right of use is not based on a right of ownership.

The differences between acquisition of ownership and rights of use are not as great as we had feared

However, the differences between acquisition of ownership and rights of use are not as great as we had feared, Wibier states. There are important differences between the law of obligations and property law but when you look at the details of the legal issues, they often prove to be rather limited. It is very important to analyse what parties want to achieve as regards certain innovative social phenomena, without relying too much on generalizations on ‘property law’ or ‘the law of obligations’.

IT complications

In many forms of servitization, however, the role of IT can lead to complicated issues where no proper legal regulations are in place, argues Professor Eric Tjong Tjin Tai, who conducts research on the interface between private law and information technology. This is the case in particular as regards the continuity of support for new updates and server services.

As long as no adequate legal arrangement is in place, it all comes down to making clear agreements

At the same time, we cannot expect suppliers to do the impossible. As long as no adequate legal arrangement is in place, it all comes down to making clear agreements that are proof against willful breach of contract and insolvency. Parties need to agree in particular on terms relating to termination and interim changes.

A problematic issue here is the dependency on software code, that is mostly secret, the property rights to which can bar changes by other parties. Consumers will be left in the cold unless there is a proper legal framework.

Construction industry

From a legal perspective, the many product-as-a-service models in the construction industry cannot be simply covered by one special contract, Van Gulijk explains in this special issue. Servitization in the sustainable built environment strongly emphasizes long-term relationships, whether the construction of private houses or civil engineering projects are concerned. But these are hard to accommodate by a building contract, which is by nature temporary. From a legal point of view, a contract for the provision of services would be a better fit, except that the general nature of that arrangement will not be very helpful to parties. An interesting alternative that requires further investigation would be the legal concept of 'bewerking van zaken' (a contract for processing services) for contracting work.

Do you want to know more? Read the special issue on Servitization of the Weekblad voor Privaatrecht, Notariaat en Registratie (in Dutch, accessible to Tilburg University students and staff).