Standard form contracts are set to be overhauled with new laws coming into force to protect small business.
On 20 October 2015, both houses of Parliament passed amendments to the law to extend the unfair contract term protections which are currently available to consumers to small businesses.
Under the new laws, contract terms may be declared void and unenforceable if the term is unfair. If the contract cannot operate without the term the entire contract is declared void.
What is a small business?
A business is classified as a “small business” if it employs less than 20 employees (not including casual employees unless they are employed on a regular and systematic basis).
Which contracts are small business contracts?
Contracts affected are those which meet the following conditions:
- have at least one party as a small business;
- are in a standard form (i.e. are a pre-prepared contract offered on a ‘take it or leave it’ basis);
- have an upfront price payable under the contract of:
- up to $300,000; or
- up to $1,000,000 if the contract is for more than 12 months; and
- relates to:
- the supply of goods or services;
- a sale or grant of an interest in land;
- a financial product; or
- the supply or possible supply of financial services.
What is an unfair term?
In deciding whether a contract term is unfair, the courts may have regard to whether the term:
- causes an imbalance in power between the contracting parties; and
- is reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
- causes detriment to a party.
In passing the law, Parliament commented that the new laws will address vulnerability faced by small business and support time-poor small business owners.
The introduction of the laws will shake up the current standard form contracts on offer to small businesses and will level the playing field somewhat for small businesses negotiating such contracts.
Anyone offering standard form contracts to small businesses risk being exposed to disputes and the possibility of terms being declared void and unenforceable.
The Act will come into effect on 12 November 2016 and will apply to any contract entered into or renewed after that date or to a term that was varied after that date.
Now is the time to conduct a review of your standard form contracts with us.