Unfair contract terms extended to small business

Unfair contract terms extended to small business

A new law, introduced from 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.

Small businesses enter into and renew standard form contracts regularly, especially between large suppliers such as lenders, insurance companies and telecommunications.

The new 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 and services or the sale or grant of an interest in land
  • At least one of the parties is a small business (employs less than 20 people)
  • 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.

Under the new law, a contract’s terms may be considered unfair if:

  • Terms enable one party (but not another) to avoid or limit their obligations
  • Terms enable one party (but not another) to terminate the contract
  • Terms penalise one party (but not another) for breaching or terminating the contract
  • Terms enable one party (but not another) to vary the terms of the contract.

From 12 November 2016, small businesses will have a higher level of protection so business owners should carefully review all terms of any contracts they enter into. If you believe the terms of a standard form contract are unfair, ask the other party to remove the term or amend it so it is no longer unfair.

For those businesses drafting a standard form contract, be sure to carefully review your terms and, if in doubt, seek professional advice.

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