If your business is involved in commercial contracts, especially standard form contracts, it is important that you keep up to date with the new laws that govern their legitimacy.
In 2016, a new law will protect small businesses from unfair terms when they agree to standard form contracts. This is pertinent as businesses, especially SMEs, will incur a range of contractual obligations as part of their daily operations and which might affect their performance.
In 2016, a new law will protect small businesses from unfair terms when they agree to standard form contracts.
The volume of failed businesses in Australia is a cause for concern. In the third quarter of 2015, the number rose by nearly 18 per cent in comparison with the same quarter in 2014. In the three months up until September, there were over 13,600 failed businesses – in comparison to the 11,535 a year earlier.
To better protect small enterprises, the new law will target unfair terms in standard form contracts – those agreements that leave little space or opportunity to negotiate terms with the party that prepared it.
New laws, new protections
The aim of the new law is to extend the protection currently afforded individuals under the Unfair Contract Law contained in the Competition and Consumer Act 2010 (Cwlth) to small businesses who have entered into or renewed a standard form contract on or after 12 November 2016. For the new act to apply, the contracts must either:
- relate to the supply of goods and services or the sale of land or a grant of interest;
- include one party that is defined as a small business (one that employs fewer than 20 people) or,
- have an upfront price payable at or under $300,000 (if the term of the contract is 12 months or less) or $1 million if it is longer than a year.
The law will also apply to commercial contracts that vary their terms on or after the date the new law comes into effect.
Specifically, the law will target a series of terms that the government believes unfair for smaller businesses. These can include:
- terms that allow one party to escape their obligations but hold the other too account
- terms that allow one party to terminate a contract but disallows the other from doing the same
- terms that punish one party for contract breaches but offer no penalties for the other
- terms that allow one party to change a contract's terms but do not allow the other to do the same
What can be done to avoid any issues?
If you are a company that issues standard form contracts, it is essential that you have these commercial agreements reviewed prior to the new law coming into effect (12 November 2016) to ensure they comply with the requirements of the new law. If some or all of the provisions of your contract do not comply, then the risk exists that a court could either declare those terms void, or award compensation to the other party if the offending provisions are enforced.
Additionally, if you own or operate a business that is currently bound by a standard form contract, obtaining quality legal advice could help you understand how this law change may affect your existing obligations.
In both cases, it would pay to talk to the experts in the field of commercial contracts. Contact McCarthy Durie Lawyers today and find out more.