As a small business operator, it’s important to know your rights when entering into a standard form contract, or providing such a contract to others.
What’s a standard form contract?
A standard form contract is generally one which has been prepared and entered a number of times by one party to a contract and where the other party has little or no opportunity to negotiate the terms– that is, it’s effectively offered on a ‘take it or leave it’ basis.
If a dispute arises, an agreement is assumed to be a standard form contract, unless the party that prepared it can prove that it’s not. Ultimately, only a court or tribunal can decide that a term is unfair.
Changes effective from 9 November 2023
Changes to the Australian Consumer Law, effective from 9 November 2023, prohibit businesses from proposing, using, or relying on unfair contract terms in their standard form contracts with consumers and small businesses.
Under the new laws, small businesses are covered by the unfair contract terms protections for any new or varied standard form contract from 9 November 2023 if they have 100 or fewer employees or have an annual turnover of less than $10 million.
What’s an unfair contract term?
Whether a term is unfair will depend on its wording and how it operates, considering the whole of the contract.
Terms that may be deemed ‘unfair’ include where only one party:
- can terminate, vary or renew the contract
- broadly excludes liability for delay and non-performance and places significant caps on one party’s liability (without limitations being placed on the other party’s liability)
- excludes, restricts or modifies a party’s rights under the consumer guarantees.
As an example, numerous small business owners complained that an advertising company’s contract contained an automatic rollover clause where the agreement renewed every year. This clause could be considered unfair if:
- It was not adequately disclosed.
- There was no notice given that the contract was about to renew.
- The customer would be charged excessive fees if they cancelled after the contract was automatically renewed.
For more information on unfair contract terms visit the ACCC website.
Retail lease contracts
Retail lease clauses that could be impacted by the amendment to unfair contract terms include:
- Rent reviews
- Length of lease
- Power of attorney provisions
- Damage abatement
- Guarantee and indemnity provisions
- Level of insurance cover
- Relocation provisions
- Make good obligations
- Fit out regimes
Which contracts are covered?
From 9 November 2023, the provisions apply to a standard form contract for the supply of goods or services, or the sale or grant of an interest in land, where at the time of the contract at least one party to the contract either:
- Employs less than 100 persons.
- Has an annual turnover of less than $10 million.
What should I do if I’m offered an unfair contract to sign?
It’s not a good idea to sign a standard form contract if you find the terms unfair. Instead, you could:
- Try to negotiate the unfair elements out of the contract or amend the term.
- Seek independent legal advice.
- Contact our free business advisory service.
- Contact the ACCC’s small business helpline on 1300 302 021.
Report an unfair business contract
If you believe you are experiencing an unfair contract term, or other unfair business practices such as non-payment or breach of contract, you can anonymously report the issue to the SBDC for investigation.