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While many businesses have a set of contract terms, it may be that some of those terms are unfair and unenforceable, potentially exposing that business to liability.

Now that the Unfair Contract Terms (UCT) Regime has been extended to apply to ‘small business contracts’ (as from November 2016), businesses should ensure their contract terms are up to date, fair, and enforceable.

What is an Unfair Contract Term?

An unfair contract term is one that:

  1. Creates a significant imbalance in the other party’s rights and obligations under the contract;

  2. Is not reasonably necessary to protect a legitimate business interest; and

  3. Would cause financial or other detriment to a party if it were to be relied upon.

The UCT Regime provides that an unfair contract term will be unenforceable.  Depending on the construction of the contract, this could make several terms of the contract unenforceable, or make all or part of the contract void.

How does the Unfair Contract Terms regime apply to Small Businesses?

In relation to small businesses, the UCT regime covers contracts that are for the supply of goods or services, or a sale or grant of an interest in land, where one of the parties employs fewer than 20 employees, and:

  1. The upfront price payable under the contract is less than $300,000; or

  2. The contract is for a term of more than 12 months and the upfront price payable under the contract is less than $1,000,000.

Examples of Unfair Contract Terms

Some examples of unfair contract terms are as follows:

  1. Terms allowing for one party to unilaterally alter terms of the contract;

  2. A term allowing for termination without cause;

  3. A term requiring exorbitant early termination fees to be paid out;

  4. A term providing for a contract to automatically rollover into another contract upon its completion; or

  5. A term that penalises one party but not another party for a breach or termination of the contract.

Does your contract look a bit dodgy? Let a contract lawyer sort things out.

If you would like to discuss your contract terms, you can contact our Dispute Resolution & Litigation team at Taurus Legal Management on (03) 9481 2000.

Posted by Taurus Legal Management