New legislation has been approved this month to protect small
businesses from unfair contract terms. From the date the law comes
into effect, any unfair term in a "standard small business
contract" may be deemed void by a court or the NSW Civil and
What is an unfair term in a standard small business
Australian Consumer Law provides that a term of a small business
contract is unfair if it:
would cause a significant imbalance in the parties' rights
and obligations arising under the contract; and
is not reasonably necessary in order to protect the legitimate
interests of the party who would be advantaged by the term;
would cause detriment (whether financial or otherwise) to a
party if it were to be applied or relied on.1
All the provisions must be satisfied for a term to be deemed
unfair. However, the contract will continue to bind the parties,
provided that it can still operate without the unfair term.
When is a small business contract affected?
A "standard small business contract" is a pre-prepared
contract which generally offers no opportunity to negotiate the
terms for the supply of goods or services, or the sale or grant of
an interest in land.
The contracts affected will be those:
Where at least one of the parties is a small business that
employs less than 20 people (including casual employees which work
on a systematic and regular basis).
The upfront price payable under the contract is no more than
$300,000 or $1 million if the contract is longer than 12
When does the new law come into effect?
The new law comes into effect 12 months after Royal Assent, on
12 November 2016, and will apply to contracts entered on and after
this date. This allows small businesses a one year grace period to
review and amend their standard small business contracts in order
The new legislation may also apply to contracts made prior to
the Assent date, if the contract is renewed or when a particular
term of the contract is varied after the law comes into effect.
If you are a small business and have been offered a standard
contract which you believe may contain an unfair term, it's
important you understand your protections under the new law.
Alternatively, if you're offering a standard small business
contract it's important you review your terms and conditions to
ensure they comply with the new legislation.
1Competition and Consumer Act –
Schedule 2 2010 (Cth) s 24
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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