The Mandatory Term in Membership Contracts

Membership contracts are a contractual figure that is not defined in the Colombian legislation, consequently, it is a contract that we call atypical due to the lack of regulation. Being an atypical contract and not having a rule that develops the figure, the jurisprudence in arbitration matters has proposed a development and has established its scope.

1. The decision issued by an Arbitration Court of the Bogotá Chamber of Commerce on August twenty-three (23) two thousand and twenty-one (2021) (the “Arbitration Court”) in the Vortex vs. Wework case, indicated that in Colombia the existence of atypical contracts arise when the legislator has not regulated the type of contract.

2. Regarding the membership contract, the Arbitration Court concluded that: “It is a contract where one party undertakes to provide the other party with non-exclusive access to and use of a community workspace, together with a series of associated services, in exchange for the payment of a price depending on the package of benefits contracted.“

3. According to the Arbitration Court´s analysis, the membership contract has as essential or main elements: i) the use of a space; ii) the additional services; (iii) the term and; iv) the price.

4. The membership contract has the characteristic of being considered, in some cases, a contract of adherence when the requirement of exercising a position of contractual dominance is met, that is, when one party exercises a dominant position when agreeing on the terms and conditions of the contract.

5. Although it cannot be concluded that the membership contract is itself a contract of adherence, it is possible to establish as a rule that at the time of negotiation of a contract of this type, if there is no extensive discussion of its clauses, the contracting party will end up adhering to the contract proposed by the contractor (contract of adherence).

6. To analyze the mandatory term within the context of membership contracts, it is important to mention that such concept is established in Article 2011 of the Civil Code:

“If a forced time has been fixed for one of the parties, and voluntary for the other, what has been stipulated shall be observed, and the party who may cause the lease to cease at will, shall, however, be subject to give the advance notice that has been said.”

7. Although the mandatory term – “forced time” is found in the chapter that regulates the lease contract and is not fully defined, it is possible to extract from the interpretation of the norm that within the Colombian legal system it is permitted to establish a mandatory term in a contract.

8. According to the Arbitration Court, the mandatory term implies an obligation of “not to do” which consists of not terminate a contract before the expiration of the mandatory term and that such obligation of not to do may be in the head of both or any of the contracting parties.

9. Regarding the mandatory term clause in the membership contract, it may be mentioned that such provision may eventually be declared null and void, when it is proven that the provision is unlawful or when the law has been infringed; or because it is contrary to a rule of public order.

10. The mandatory term clause in the membership contract may also be abusive, under the understanding that it is a stipulation that does not comply with the legal system because it does not observe the principle of good faith and equity in contractual matters.

11. On the other hand, the Arbitration Court stated that “There is no mandatory rule that prohibits this type of agreement in commercial contracts, on the contrary, it is usual that in long-term contracts a termination term is agreed (e.g., supply, provision of services, leasing) and where early termination entails a breach of contract, it is also usual that in contracts such as the provision of services, security deposits are agreed in case of default by the contractor“.

13. In conclusion, if the mandatory term clause, even in the case of an membership and adherence contract, complies with proportionality criteria, does not violate public order rules and complies with the principles of good faith, it may be inferred that it is not a clause that may be declared null and void or abusive in the context of a judicial or arbitration proceeding, as the Arbitration Court concluded in this case.
14. On the contrary, if the space provider does not allow discussion of the clauses of the membership contract or the negotiation of mandatory term clauses, it will automatically be understood that we are dealing with a contract of adhesion which, if the obligatory burden it imposes is excessive, may end in the declaration of nullity of those provisions and thus release the signatory.