The Federal Government is currently legislating to allow unfair terms in standard form contracts that small businesses enter to be declared void. Currently, only consumers who enter into such contracts are protected against unfair terms.
Why is this important? Small businesses are regularly offered contracts by their larger and more resourced counterparties, or even other small businesses, on a “take it or leave it” basis. Small businesses often lack the resources to fully understand and negotiate contract terms. Competition is fierce and who wants to “bite the hand that feeds”. The profit margin in a contract may not be enough to justify obtaining legal advice. As a result, unfair terms remain in these contracts and the risks of the contracts get allocated to small businesses, which are not always able to manage those risks.
By providing small businesses with a remedy against unfair contract terms, the Federal Government seeks to discourage the inclusion and enforcement of unfair terms in small business contracts. The theory is that contract risks will be more appropriately allocated between the parties and that small businesses will become more confident when contracting.
So, some FAQs:
- When? From early 2016, so now is the time to review contracts you issue for any unfair terms.
- What is a small business? One which has less than 20 employees, so most businesses in our region.
- What is a small business contract? One where the agreed price for the supply or sale at the time of the contract is less than $100,000 or $250,000 if the contract term is more than 12 months. For larger contracts, small businesses will still have to undertake careful due diligence.
- What are unfair terms? Those that cause imbalance between the rights and obligations of the parties and are not reasonably necessary to protect the advantaged party, and which would cause detriment to the other party if relied on.
At Everingham Solomons, we can assist you to get your contract terms in order before the changes occur because Helping You is Our Business.
Click here for more information on Keiran Breckenridge.