Introduction

So you have finally decided to take the plunge and launched your NFT marketplace or exchange project. Let me ask you a question that's critical to your success as a business. Do you know what NOT to do when instructing your developers on designing the NFT platform? Can you legally sell the token you wish to offer on your platform? Are you compliant with the laws of the countries where your platform is doing business? What is the best jurisdiction to set up the business that runs the NFT platform? Are the types of NFTs you are selling gambling products? NFT marketplaces that have not done their homework on compliance and legitimate contractual terms find themselves being investigated or in litigation, before they have even started. We receive several complaints from NFT business owners that their terms and conditions are challenged continually by buyers, particularly on the legitimacy of their terms and conditions but by then it is too late to save a significant sum in legal fees.

Here's my list of 10 critical clauses NFT terms and conditions should contain.

1. Don't forget the compliance preamble.

NFT terms and conditions are a binding agreement governing the following contracting parties to an NFT marketplace or exchange:(i) the company that owns and runs the platform; (ii) a user/buyer of NFTs (iii) a user/seller of NFTs called an NFT Token Holder. NFTs are stored and marketed as well as bought and sold via the NFT platform by buyers and sellers for fiat currency or cryptocurrency. Users may create their own NFTs on some NFT platforms. There are many variations of NFT businesses offering an ever-expanding range of niche NFT products and options, programs and features that must be contractually clear and comply with trading standards and other laws.

The matters you should cover in the preamble include compliance with the Financial Services and Markets Act 2000 (as amended) where applicable. Is your platform authorised to conduct investment activity or are you exempt from needing authorisation? Where is the company incorporated that manages the platform incorporated? How many NFT tokens are you issuing? What is the maximum number of tokens? How many phases will it take for all the tokens to be offered for sale?

2. Definitions and Interpretations.

Here you should define all the terms that you will deal with in the terms and conditions such as - the NFT Platform description; Anti Money Laundering Regulations; any documents including the White Paper and any other information relating to the platform and the use of NFTs as may be announced by the Company; Know Your Client (KYC); any prohibited buyers; and a non-custodial or custodial wallet whichever is applicable.

3. Dispute Resolution.

Address how you will deal with disputes in your terms and conditions. Will disputes be dealt with by arbitration? Will arbitration be mandatory? If it is mandatory have you fully complied with the mechanics of a mandatory arbitration clause? What law will apply to any dispute? Arbitration clauses are tricky and will fail if not properly drafted. If disputes are resolved in a court where will that court be situated?

4. Cancellations and Returns.

• Under UK law buyers are legally entitled to cancel the purchase of virtually all goods or services, and NFTs are no exception. That being said, depending on the type of NFT being sold it may be exempt from the entitlement to cancel.

• Quite apart from the default right to cancel a buyer may also be entitled to the return of their purchase/investment in certain circumstances where the legal grounds support a cancellation of the contract, the return of any monies paid, and additional damages for various related economic losses.

• The law governing cancellation will depend on the legal jurisdiction that applies to the purchase of the NFT.

• If cancellation charges are applied then they must be in accordance with the law of the applicable jurisdiction.

• Cancellations of NFT purchases have increasingly become the subject of litigation in the UK and the rest of the world so it is advisable to get this clause right.

5. Changes to Terms and Conditions.

There is nothing stopping you from changing your terms and conditions from time to time, however, you must be clear as to how such changes will be communicated. You also need to be precise as to how the original terms and any updates are accepted by users.

6. Representations and Warrants of all contractual parties.

• Representations and warranties made by all the contractual parties to the marketplace are probably the most important clauses in the terms and conditions. You will need a separate clause for each of the contractual parties as they will be making different representations and warranties although some parties will be giving the same assurances such as age.

• If the Company is offering any commissions, bonuses, compensation or any other kind of feature to affiliates or buyers/investors this is where it sets out the limits of its obligations.

• The importance and sophistication of these clauses cannot be overstressed as they will afford the widest protection for all the parties in case of a dispute.

• These clauses should be quite lengthy and form a substantial part of the terms and conditions.

7. Disclaimer and limitations of liability.

• Here the Company should set out in so far as is possible under the law of the jurisdiction in which it operates what risk it excludes from the scope of its liability.

• The Company may specify that it will only pay out a fixed sum for any claim.

• In some cases, if the governing law permits, the Company may state that it will not issue any refunds under any circumstances.

• These clauses vary in sophistication but how this is approached will depend on the features of the NFT marketplace in question.

8. Privacy Policy. 

A separate privacy policy is compulsory. But the terms and conditions will want to deal with the information the Company needs from the users to run the platform. This clause should state the Company’s obligations when collecting and storing user information in detail. There must be an additional privacy policy that fully complies with the privacy laws for the jurisdiction governing the sale and purchase of the NFTs via the platform.

9. Disclosure of Risk Factors.

The detail or sophistication of this clause will depend on the type of NFTs being offered. If the NFTs involve any kind of financial instrument then this clause would be very extensive to protect the Company and users.

10. Applicable Law.

Last but by no means least, is selecting the appropriate jurisdiction to govern the marketplace. This clause is more complicated than a non-specialist might think, especially when dealing with a platform with international ambitions. The things to remember are the relationship between the applicable law and users of the platform and the type of dispute resolution governing the platform. You will need to refer to the dispute resolution clause when dealing with the applicable law and forum for disputes clause.

Conclusion. 

There are several other clauses that should go into ant NFT marketplace terms and conditions the above are by no means exhaustive. Further, the information provided is more to give an understanding of why professional advice is needed and not meant as a tool for attempting to write the terms without consulting a specialist. In any event, the above clauses should get you started if you need an extra push but are weary of the legal compliance in starting an NFT platform.

My firm's NFT and blockchain practice would be delighted to draft terms and conditions for your NFT platform. To book a face-to-face consultation for commercial legal advice relating to selling or seeking investors for an NFT or cryptocurrency token fundraising you should contact me at peter@pailsolicitors.co.uk or call 020 7305-7491or through our general contact form at our website. (charge rates may apply and may vary).