12 November 2016 will mark the commencement of a new law designed to protect small businesses from unfair terms in standard form contracts. The law will apply to a standard form contract entered into or renewed on or after 12 November 2016, where:
- it is for the supply of goods or services or the sale or grant of an interest in land;
- at least one of the parties is a small business (employs less than 20 people, including casual employees employed on a regular and systematic basis);
- the “upfront price payable” under the contract is no more than $300 000 or $1 million if the contract is for more than 12 months.
Also, if a contract is varied on or after 12 November 2016, the law will apply to the varied terms.
Under this new B2B unfair contracts legislation, a standard form contract is considered to be one that has been prepared by one party to the contract and where the other party has little or no opportunity to negotiate the terms – in other words, it is offered on a ‘take it or leave it’ basis.
For companies using standard forms contracts, the risks of having a term in your standard form contract found as “unfair” can be significant. If a court or tribunal finds that a term is ‘unfair’, the term will be void, meaning it is not binding on the parties. While the rest of the contract will continue to bind the parties to the extent it is capable of operating without the unfair term, having a term (or several terms) found to be unfair could complicate things.
Time is fast running out for businesses that use standard form contracts to think about whether the new law applies to them, and to review their contracts accordingly.
Want to know more or need some help? Call me on 02 8313 7151 or 0401 225 253.