New law protects small businesses from unfair contracts

A new law that takes effect on 12 November 2016 will protect small businesses from unfair terms in standard form contracts.

A standard form contract is one that has been prepared by one party to the contract and where the other party has little or no opportunity to negotiate the terms — that is, it is offered on a ‘take it or leave it’ basis.

The law will apply to a standard form contract entered into or renewed on or after 12 November 2016, where:

• it is for the supply of goods or services or the sale or grant of an interest in land;
• at least one of the parties is a small business (employs fewer than 20 people, including casual employees employed on a regular and systematic basis);
• the upfront price payable under the contract is no more than $300,000 or $1 million if the contract is for more than 12 months.

The law sets out examples of terms that may be unfair, including: terms that enable one party (but not another) to avoid or limit their obligations under the contract; terms that enable one party (but not another) to terminate the contract; terms that penalise one party (but not another) for breaching or terminating the contract; terms that enable one party (but not another) to vary the terms of the contract.

Ultimately, only a court or tribunal (not the ACCC) can decide that a term is unfair. If a court or tribunal finds that a term is ‘unfair’, the term will be void — this means it is not binding on the parties. The rest of the contract will continue to bind the parties to the extent it is capable of operating without the unfair term.

While most standard form contracts and contractual terms will be covered by the unfair contract terms law, there are a number of exceptions. For more information take a look at the ACCC’s information about unfair contract terms.

Sources: ACCC; business.gov.au