Small businesses to be protected from unfair contract terms

Protections afforded to consumers against unfair terms in standard from contracts have been extended to small businesses with the Federal Government’s passing of the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 last month.

The changes will see that unfair terms within standard form small business contracts are treated as unenforceable and treated as though the term did not exist. A small business, ASIC, ACCC or state regulator can apply to the Court to have a term declared unfair. The Court can also order that compensation be paid by the offender.

A ‘small business contract’ is defined as a contract for the supply of goods or services or for the sale of or grant of an interest in land, for which one party to the contract employs less than 20 people, and for which the upfront price of the contract does not exceed $300,000 for contracts lasting one year or $1,000,000 for contracts lasting longer than a year.

The Bill does not import penalties for those who have included unfair terms in their standard form contracts, although attempting to enforce an unfair term may allow the innocent party to seek remedy.

Some examples of terms that may be unfair include:

  • Those that enable only one party to avoid or reduce their contractual obligations;
  • Those that allow only one party to be able to terminate or vary the contract;
  • Those that penalise only one party for breaching their obligations under, or terminating the contract.

The new laws commenced on 12 November 2015 and now apply to small business Agreements.

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