Avoiding pitfalls in membership contracts: a guide for private members’ clubs

Membership-based organisations, such as private members' clubs, sports clubs and co-working spaces, offer exclusive communities that blend social opportunities, professional networks and shared experiences. Despite the tricky economic climate, many of these businesses are thriving. As a recent press article observed, “the British are obsessed with socialising in a very regulated way,” with the desire to belong to a select group becoming even more pronounced in times of political and economic uncertainty[1].

At the core of these organisations are membership contracts. These agreements define the rights and obligations of both parties, incorporate the club’s rules and protect the organisation’s interests. This article offers a practical guide for those running membership-based businesses, identifying common pitfalls in membership contracts and suggesting strategies to prevent disputes.

The role of membership contracts

A membership contract is fundamental to the relationship between a membership-based business and its members. These agreements, contained within or otherwise entwined with the club’s rules, set clear expectations for both parties, ensuring that everyone understands their rights and obligations. With solid contracts in place, businesses can avoid misunderstandings and prevent costly disputes further down the line.

In membership-based businesses, where exclusivity, reputation, and brand image are often paramount, rules around member behaviour, access, and conduct can be strict. Clubs may enforce dress codes, control access to certain areas, or impose rules on social media use and photography. For instance, many private members' clubs, such as Annabel's, The Groucho Club, and Soho House, implement a no-photography policy to try preserve an exclusive atmosphere.

Rules like these are essential for maintaining the identity and values of the club, and it is crucial that membership contracts clearly reflect any such expectations.

Common pitfalls in membership contracts

There are several common pitfalls that organisations must be mindful of when drafting these agreements.

1. Ambiguous terms: a common pitfall in membership contracts is ambiguity. Terms, especially those governing member behaviour, should be clear and unambiguous. While policies that ban photography or limit social media activity are typically straightforward, rules prohibiting more general misconduct can leave room for interpretation. Using clear and ordinary language and avoiding inconsistencies within an agreement, or when incorporating separate rules or policies, is important.
2. Weak or unfair termination clauses: Once conduct is identified as relevant under the club's rules, the membership committee generally has the authority to determine whether a member’s actions warrant termination. However, termination clauses should be clear and specific to avoid accusations of arbitrary or unfair decisions that fall outside the committee’s remit. Vague, overly broad, or otherwise unfair termination clauses may also be subject to legal challenges under the Consumer Rights Act 2015. That said, courts will likely recognise that, in the context of a private members’ club (as opposed to a business open to all members of the public), the club retains significant discretion.
3. Reputational risks: clubs can and should consider specifically addressing member actions in or outside of the club that could harm their public image. Rules commonly state that a club shall have power to expel a member if their conduct, whether in the club premises or elsewhere, harms the good name of the club. There is then a question as to whether the misconduct relied on has sufficiently passed the threshold to justify expulsion.

Best Practices for disciplinary or termination matters

Membership disputes often arise from perceived unfairness in the disciplinary process, particularly when a member is expelled without proper procedures being followed. To avoid lengthy and costly legal proceedings, clubs should adopt the following best practices for handling disciplinary issues.

1. Natural justice and procedural fairness: while private members' clubs enjoy significant autonomy which extends to setting their own disciplinary rules and processes, adhering to basic principles of natural justice, including fairness and transparency, is essential when it comes to membership termination. In particular, they must ensure that members are notified of charges, given an opportunity to respond, and that any disciplinary or termination process is carried out in line with any procedures laid down by the relevant rules and in good faith. The courts will imply the rules of natural justice into a membership agreement where necessary.
2. Clearly defined grounds for termination: membership contracts must clearly define the grounds for termination or suspension to avoid challenges. Vague or unclear grounds leave clubs open to accusations of unfair treatment. Clear criteria for membership conduct should be established, ensuring that well-defined categories of breach justify termination or suspension.
3. Transparency and confidentiality: when dealing with termination or disciplinary action, it is essential that clubs balance transparency with confidentiality. While members should be informed of the procedures and the outcomes of any disciplinary action, their privacy must also be safeguarded. Failing to maintain confidentiality can lead to reputational damage and erode the trust of members.
4. Equality Act considerations: private membership organisations are not exempt from anti-discrimination laws. The Equality Act 2010 applies to private members' clubs, prohibiting discrimination based on protected characteristics such as age, disability, race, or sex. The Act allows private clubs to restrict membership to people who share certain protected characteristics (eg single-sex clubs are permitted); however, it is still unlawful for private clubs to restrict their membership to people who share certain other protected characteristics.

Remedies for disputes

The extent to which the courts will step in to adjudicate a dispute between a membership organisation and a member will depend on a number of factors including the nature of the organisation and the complaint in question.

Members' clubs, particularly those which are social in nature, have always enjoyed significant autonomy in managing internal affairs. In the Showmen's Guild case, Lord Denning explained that: “the rules [of a social club] usually empower the committee to expel a member who, in their opinion, has been guilty of conduct detrimental to the club, and this is a matter of opinion and nothing else. The courts have no wish to sit on appeal from their decisions on such a matter any more than from the decisions of a family conference”[2]. It follows that courts will not generally intervene to overturn disciplinary decisions where the club’s tribunal has weighed the available evidence, formed an opinion as to the facts, and applied its interpretation of the rules to those facts. For example, applying this principle, the court recently upheld the Lansdowne Club’s decision in the High Court challenge brought by a former member following her expulsion[3].

On the other hand, it is long-established that the courts can and will step in if a membership organisation fails to follow its own rules and/or the decision made is arbitrary, capricious or irrational. Take for example the member who was recently expelled from the prestigious Sunningdale Golf Club but successfully challenged the decision, resulting in the club being ordered to reinstate him[4].

In such cases, whether the courts will grant an injunction imposing reinstatement will depend on the facts. In proprietary clubs and membership businesses, where ownership and assets are controlled by a single individual or a defined group, the expulsion of a member typically would not entitle them to reinstatement. Members may be awarded damages, but reinstatement is unlikely, as they do not hold proprietary rights in the club’s assets and the courts are generally reluctant to force together two private parties where the relationship of trust and confidence has broken down.

For clubs that are unincorporated associations, such as many sports clubs, courts may be more inclined to reinstate expelled members due to the collective ownership of the club’s assets or a loss of livelihood. As in the Sunningdale case, courts may intervene to protect the beneficial interest of the expelled member, and order reinstatement along with damages for loss of membership.

Conclusion

When drafting membership contracts, private members' clubs and similar businesses must strike a balance between protecting their interests and respecting the rights of their members. Clear, fair, and transparent contracts lay the foundation for mutually beneficial relationships while safeguarding the organisation’s reputation.

Carefully handling termination clauses, thoroughly recording decision-making and ensuring members are treated fairly should help prevent disputes. Regularly reviewing membership contracts to sense check procedures and address changes in the law and evolving reputational risks ensures continued protection for both the organisation and its members.

[1] Welcome to the club: why are private members’ clubs booming? | Society | The Guardian

[2] Lee v Showmen's Guild of Great Britain [1952] 2 QB 329

[3] Mok v Fitzmaurice House Ltd t/a the Lansdowne Club [2024] EWHC 2804 (KB)

[4] Cawood v Sedgwick and others (Sunningdale Golf Club) (2019) Microsoft Word - .Final Definitive Judgment - Cawood v Sunningdale Golf Club - D03CL584

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, January 2025