Unfair contract terms review: Act now to avoid major financial impact

Does your business use standard or template type contracts?

Have you considered whether your contracts comply with the upcoming changes to laws about unfair contract terms?

As you’ve probably heard, Australian unfair contract terms legislation is growing teeth on 9 November 2023, with a significant broadening of the types of businesses to which the laws apply and the introduction of major penalties for non-compliance.

The changes will apply to standard form contracts (contracts provided largely on a ‘take it or leave it’ basis with limited substantial negotiation) with consumers and small businesses. Contracts of this type are not permitted to include unfair terms, which might include terms that are one-sided or unbalanced in favour of one party about matters such as:

• termination;
• penalties for breaches;
• renewal;
• indemnities;
• variation terms once the contract is on foot; and
• assignment.

Types of contracts that may be affected include contracts to:

• supply goods or services,
• sell or lease land, or
• supply financial services or financial products.

Unfair contract laws apply to standard form contracts with a consumer or a ‘small business’. The imminent changes significantly expand the meaning of ‘small business’ to mean a business where at least one party has less than 100 full time equivalent employees or an annual turnover of less than $10 million, regardless of the value of the contract.

Currently, ‘small businesses’ are determined by much more restrictive factors, such as the up-front value of the contract, and only apply to businesses which have less than 20 employees.

If your business deals with consumers or ‘small businesses’ using template or standard form contracts, these changes are likely to affect you.

From 9 November 2023, financial penalties for breaching the amended unfair contract term laws will apply for the first time.

The penalty for each contravention by a company will be the greater of $50 million, three times the amount of the benefit or value gained by the contravention, or 30% of the annual turnover of the company. Individuals who have been involved in a contravention face a maximum penalty of $2.5 million.

One contract can be the subject of multiple contraventions, creating significant financial exposure for businesses who fail to comply. The changes will apply to new contracts, and existing contracts which are varied or renewed from 9 November 2023.

DMAW Lawyers is offering a fixed price standard form contract review service to assess compliance in preparation for the new laws. We will review and identify provisions which risk breaching the unfair contract term laws and recommend suitable amendments.

It is now time to get your house in order before the changes commence to minimise the risk of your business being caught with non-compliant contracts.

Act now. Engage our experts to complete a compliance review of your standard form contracts to ensure necessary amendments are made prior to the 9 November deadline.