The government has introduced legislation that will affect you as a small business from 12 November 2016.
The changes relate to what is considered unfair terms in standard form contracts entered into on or after the commencement date of 12 November 2016.
What is a small business?
Small business is defined for the purposes of this legislation to be a business that employs less than 20 people (including casual employees).
The new legislation will apply if any one of the parties to the contract is a small business and:
- The contract is for the supply of goods or services or the sale or grant of an interest in land; and
- The upfront price payable under the contract is no more than $300,000.00 or $1 million if the contract is for more than 12 months.
Standard form contracts
The new rules will apply to a standard form contract entered into or renewed on or after 12 November 2016 and not for existing contracts. A standard form contract is one that has been prepared by one party to the contract, normally with little or no opportunity for the buyer to negotiate the terms.
What contracts and terms that are not effected?
- Contracts entered into before 12 November 2016 (unless renewed on or after this date)
- Certain insurance contracts
- Terms that define the subject matter of the contract, the upfront price payable and that are required or expressly permitted by a law (eg under the franchising code)
Examples of contracts which may be affected include:
- Franchise agreements;
- Manufacturing and distribution agreements;
- Business terms and conditions;
- Licence agreements;
- Service agreements; and
What may be considered unfair?
The following terms may be considered unfair:
- Where one party (but not another) can avoid or limit their obligations under the contract;
- A term that enables one party (but not another) to terminate the contract;
- Terms that penalise one party (but not another) for breaching or terminating the contract;
- The contract can be varied by one party (but not another).
If a term is found to be unfair what happens?
The unfair term is void however the contract may continue to bind the parties provided the contract can operate clearly without the void term.
What can I do now?
It is not too late to review your contracts and think about the clauses that may be considered unfair. Amendments can be made now for any future contracts you may enter into. The number of employees for either your own business or business you are interacting with must now be front of mind to determine whether the party is a small business.
Now is the time to review your current contracts to ensure that any future agreements do not contain unfair terms. If you are unsure if a term is unfair or if you have any other questions about your contract or another party’s contract that you about to enter into please contact Streten Masons Lawyers on (07) 3667 8966