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Did you know that there are laws against unfair contract terms?  If there are unfair terms in your contracts with clients or customers, you could be penalised for breaching the Australian Consumer Law! In this article, we cover examples of unfair terms that you should look out for in your contracts.

What contracts are covered under the ACL?

Laws regarding unfair terms apply to “standard form consumer contracts”. But what does that mean?

‘Standard form’ generally refers to contracts that are prepared by one party, and are presented to another party on a ‘take it or leave it’ basis.  For example, when you sign up for gym membership, you normally read and accept the contract without negotiating it.

‘Consumer contracts’ involve the sale or supply of goods, services, or land to an individual for personal, domestic or household use or consumption.

The laws also apply to small business contracts entered into or renewed after 12 Nov 2016. However, these are on two conditions:

1. At the time you entered into or renewed the contract, your small business employed less than 20 people (including casual workers); and
2. The upfront price of the contract does not exceed $300,000. If the contract lasts for longer than 12 months, the cap is increased to $1,000,000.
   

What happens if a term is considered unfair?

If a court finds that a term is unfair, that term is treated as if it never existed. If the contract can still be upheld without this unfair term, then the rest of the contract will still stand. 

Examples of unfair terms – What counts as unfair?

What terms are considered ‘unfair’ can vary depending on the situation. We cover a few potentially unfair terms in this article, but that does not legally prevent these terms from being used. It’s best to speak with a lawyer who can tailor contracts to your business’ needs and weed out any unassuming unfair terms.

There are a few recurring terms that the Australian Consumer Law notes as more likely to be unfair:

• Limiting or avoiding only one party’s performance of the contract
  • For example, if you hire a website developer to create a website for you, and there is a clause that says they
    
• Allowing one party but not another to terminate
  • If the other party is not fulfilling their obligations, or the contract is not serving you anymore, you want a way to end the contract. It can be considered an unfair term where only the other party is allowed to terminate for convenience without reasons, but you are not able to, particularly where they do not have to give sufficient notice.

• Only allows one party to vary the terms of the contract or fees
  • Sometimes you or another party will want to change a term in the contract. However, you should make sure that all parties have power when varying the term. If another party makes a change on their own, you could be stuck with terms you didn’t sign up for! This ensures that any changes are balanced and fair.
    
• Allows only one party determine whether the contract has been breached or interpret its meaning
  • If only one party can determine a breach of contract, they can move the goalposts as they see fit. This could mean that the party won’t fulfil their initial obligations.

What Next?

Contracts are essential for facilitating your business. Catching unfair terms before you sign can protect you, your customers and your clients from legal disputes and surprise penalties! For help on your consumer contracts, contact us for a free, no-obligation chat.