New Unfair Contracts Regime

February 4, 2017

The law aims to curb the potential for small businesses to be disadvantaged by unfair contract terms which are enforced in common business agreements.

Due to be implemented from 12 November, the law will apply to any standard form contract entered into or renewed on or after this date. If changes are made to a contract on or after this date, the law will also apply to the varied terms.

The new law affects any agreement where one of the parties is considered a ‘small business’ – that is, a business employing fewer than 20 employees. Most franchisors won’t fall under this definition however most franchisees will. On this point, the ACCC has indicated that the balance of power between franchisors and franchisees may become more equitable following the change.

Franchisors who adopt a more collaborative approach in developing and finalising their contracts are likely to be less affected. Conversely, if your business model favours a more rigid approach with little or no room for discussion from the other party, you may find it difficult to argue that your franchise agreement isn’t a standard form contract.

Under the new law, you should take note of terms found specifically in franchising agreements that will be exempt from the new law such as those that deal with payment of initial fees, ongoing franchise fees, training fees and marketing fees.

Terms requiring further payments as a result of happening or not happening throughout the term – early termination fees, late payment fees, transfer fees, renewal fees, liquidated damages and interest – are among those unlikely to be exempt.

All businesses should review and seek advice on any standard term contracts which may be used, in order to consider if there is any risk that various terms could be declared void for being unfair.

Disclaimer:
SKM Lawyers prepared this article. It is intended to provide general information . The contents do not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought.