Reforms to the unfair contract terms regime (UCT Regime) will come into force on 9 November 2023. Amendments to the Australian Consumer Law (under the Competition and Consumer Act 2010 (Cth) will impact all businesses and sole traders that use standard form contracts in dealings with consumers and small businesses to:
- Supply goods or services.
- Sell or grant an interest land; or
- Supply financial services or financial products.
We recommend all property professionals consider the reforms and undertake a critical assessment of their compliance with the reformed UCT Regime.
Changes to the UCT Regime
The key reform makes it a breach of section 23 of the Australian Consumer Law if a term of a contract provided to a consumer or a small business is ‘unfair’ and the contract is a ‘standard form contract’. The reform introduces significant financial penalties against businesses and sole traders that breach the UCT Regime.
Application of the new UCT Regime
The new UCT Regime will apply to all standard form contracts which are entered, renewed or amended on or after 9 November 2023.
What is an unfair term?
A term is unfair if it:
- Would cause a significant imbalance in the parties’ rights and obligations arising under the contract.
- Is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
- Would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
What is a standard form contract?
The reform relates to any contracts prepared by one party that was provided to the other. All standard form contracts are subject to the reform regardless of whether the other party was provided an opportunity to negotiate or change the contract terms.
Standard form contracts may include the following agreements:
- Website terms and conditions.
- Client cost agreements.
- Template or sample contracts prepared by the relevant institute.
- Valuation service contracts.
- Commercial leases; and
- Contracts for sale of property.
- What is a small business?
The reform applies to contracts with small businesses that:
- Employ less than 100 people; or
- Had a turnover for the last income year of less than $10 million.
Penalties and Remedies
Importantly, a party will be prohibited from proposing a contract with an unfair term and also prohibited from applying or relying on (or purporting to apply or rely on) an unfair term. If a party does so, a court could find it is a breach of the Australian Consumer Law. Each unfair term may be a separate breach and accordingly, multiple unfair terms in one contract could incur several penalties.
A court could impose significant penalties for breaches of the new UCT Regime.
For corporations, the maximum penalty is the greater of:
- $50 million;
- Three times the value of the benefit to the corporation as a result of the breach; or
- 30% of the adjusted turnover for the offence period.
- For individuals, penalties can be up to $2.5 million.
In addition to financial penalties, courts can also order remedies including:
- Voiding, varying or refusing to enforce all or part of a contract.
- Granting an injunction to prevent a party from applying or relying on an unfair contract term in a future or current contract; and
- Orders to redress loss or damage caused or likely to be caused.
Example of ‘unfair terms’
In August 2022, the Australian Competition & Consumer Commission brought proceedings against Fujifilm Business Innovation Australia Pty Ltd (Fujifilm) with respect to 38 potential unfair contract terms contained in 11 different Fujifilm’s standard form contracts. These agreements included license agreements for printers and software as well as rental agreements.
Types of unfair terms found in Fujifilm’s contracts included:
- Automatic renewal terms.
- Imbalanced termination rights.
- Payment obligations regardless of whether Fujifilm had delivered their goods; and
- Unilateral variation terms.
Next Steps for Businesses
You have until 9 November 2023 to assess and ensure your standard form contracts are compliant with the reforms. Each term of a contract must be assessed on a case-by-case basis with regards to who the other party is, the negotiations that took place in relation to that term and against definition of ‘unfair term’. As property professionals, you may wish to consider:
- Whether you are or your clients or suppliers are caught and protected by the expanded definition of ‘small business’;
- Your termination clauses – whether the contract can be terminated by either party with an appropriate notice period;
- Any indemnity clauses – whether there is a limit to the liability and is mutually beneficial;
- Any automatic renewal terms – whether the other party will be notified of the renewal and has sufficient time to consider the renewal
- Any unilateral right to vary the contract – is it necessary and does it allow a customer to exit without penalty;
- Drafting a contract following a discussion between the parties rather than relying on a template;
- Allowing a longer period of negotiation between parties; and
- Undertaking a review of all standard form contracts and obtaining professional legal advice with respect to any terms that could potentially be unfair.
Act now by getting involved.