Blog

In today’s digital world, drafting an agreement might seem easier than ever. With tools like ChatGPT and DIY legal templates just a click away, many businesses are tempted to handle contracts themselves.

But here’s the catch: if your contract includes unfair terms, it could be unenforceable and potentially illegal, leaving your business exposed to serious legal and financial risks.

What Are Unfair Contract Terms?

The laws governing unfair contract terms (UCT) laws have been in force since 2010, forming part of the Australian Consumer Law (ACL) and the ASIC Act. A term is considered unfair if it:

• Causes a significant imbalance in the parties’ rights and obligations.
• Is not reasonably necessary to protect the advantaged party’s legitimate interests.
• Would cause detriment if applied or relied on.

Importantly, while the test for unfairness hasn’t changed, the consequences for getting it wrong have become significantly more serious.

Businesses are banned from proposing, using, or relying on UCT in standard form contracts with consumers and small businesses.

A standard form contract is one that’s prepared by one party and offered on a ‘take it or leave it’ basis, giving the other party little or no room to negotiate.

What’s Changed?

As of 9 November 2023, major reforms to the unfair contract terms (UCT) regime have come into effect, bringing in stronger protections and harsher penalties under the Competition and Consumer Act 2010 and the ASIC Act 2001.

Here’s what’s new:

• UCTs are now illegal, with each unfair term considered a separate contravention.
• Penalties have skyrocketed:
  • Up to $50 million for businesses.
  • Up to $2.5 million for individuals.
• Expanded small business protections:
  • A business is now protected if it has fewer than 100 employees or a turnover under $10 million in the previous income year.
  • Under the ASIC Act, UCT protections apply only if the upfront contract value is $5 million or less.
  • Under the ACL, the monetary threshold has been entirely removed.
• Clarification on what counts as a standard form contract: Minor negotiated changes may still fall within the definition, meaning even slightly tweaked contracts might still be subject to scrutiny.

Why a DIY Contract Can Cost You

One-sided agreements may seem efficient, but if they are unenforceable, they could:

• Jeopardise your position in a dispute.
• Cause reputational damage.
• Result in substantial financial losses and regulatory penalties.

Why Getting a Lawyer Is a Smart Investment

A well-drafted agreement is not just a formality, it’s your business’s shield and sword. Here’s why engaging a lawyer matters:

1. Tailored Contracts: Lawyers understand your industry and ensure the agreement works for your business.
2. Legal Compliance: Lawyers stay across legal reforms, like the UCT updates, so you don’t have to.
3. Avoiding Ambiguity: Clear, precise language prevents future misunderstandings or disputes.
4. Future-Proofing: Good contracts anticipate change and protect your interests long-term.

How to Stay Compliant with the Law

When drafting or entering into contracts, businesses should:

• Ensure all parties understand the terms.
• Include a clause confirming each party had the chance to obtain independent legal advice.
• Avoid vague or complex language.
• Be transparent about key obligations, risks, and liabilities.
• Review contracts regularly, especially when laws change.
• Avoid copy-paste templates that don’t account for your specific risks and obligations.

The Bottom Line

Although drafting a contract may seem easy, legal experience and practical knowledge make all the difference. With reforms now in force and penalties at an all-time high, getting it wrong is not an option.

A well-drafted agreement is an investment in your business’s security, growth, and reputation.

Need help reviewing your contracts or drafting one that complies with the new laws? Reach out to our experienced team today at  or 1300 033 934.