For many small businesses, signing a contract with a larger organisation can feel like a “take it or leave it” situation.
Standard-form contracts are common across industries, and smaller businesses may have limited ability to negotiate terms before signing. Proposed changes to Australia’s unfair contract term laws could give small businesses stronger protections and regulators greater enforcement powers.
What Are the Proposed Changes?
The Federal Government has announced plans to strengthen the enforcement of Australia’s unfair contract term laws by giving the Australian Competition and Consumer Commission (ACCC) and Australian Securities and Investments Commission (ASIC) greater powers.
One of the key proposed changes is allowing regulators to issue infringement notices for breaches of the unfair contract term laws.
This could provide regulators with a faster and more flexible enforcement option compared with relying solely on court proceedings.
For small businesses, the changes are intended to strengthen the existing framework and provide greater confidence when entering into standard-form agreements.
Why Does This Matter to Small Businesses?
Small businesses regularly enter into contracts with larger organisations for products and services such as:
- Supplier agreements
- Equipment leases
- Software and technology services
- Commercial property leases
- Insurance
- Telecommunications
- Finance arrangements
- Franchise agreements
- Professional and business services
In some situations, the smaller business may have little practical ability to negotiate the terms.
An agreement might contain provisions that appear standard but could have significant financial or operational consequences.
Stronger unfair contract term protections are intended to help address situations where contractual terms create an unfair imbalance between the parties.
Building on Earlier Reforms
The proposed changes follow earlier reforms to Australia’s unfair contract term regime.
Those reforms included making unfair contract terms illegal, increasing maximum penalties to $100 million per offence, and expanding protections to cover more small businesses.
A government review subsequently examined how the regime was operating and found that it had been successful, while also identifying opportunities to strengthen it further.
The proposed enforcement changes are part of that broader effort.
What Is an Unfair Contract Term?
Generally, an unfair contract term is a term in a standard-form contract that creates a significant imbalance between the parties’ rights and obligations, is not reasonably necessary to protect legitimate interests, and would cause detriment if relied upon.
However, determining whether a particular term is unfair can depend on the circumstances and the contract as a whole.
This is why businesses shouldn’t assume that a term is acceptable simply because it appears in a standard contract or has been used by a supplier for many years.
Don’t Rely Solely on the New Protections
While stronger laws may provide additional protection, they don’t replace the need for businesses to understand the contracts they sign.
Before entering into an important agreement, consider carefully reviewing:
Payment terms
Understand when payments are due, what happens if you’re late and whether additional fees or interest can apply.
Termination clauses
Check how either party can terminate the agreement and whether early termination fees or other costs may apply.
Automatic renewals
Some agreements automatically renew unless notice is provided within a particular timeframe.
Price increases
Look for clauses allowing the supplier or other party to increase prices during the contract term.
Liability and indemnities
These provisions can have significant financial implications if something goes wrong.
Default provisions
Understand what constitutes a default and what rights the other party has if a default occurs.
Dispute resolution
Knowing how disputes must be handled can help a business understand its options if a disagreement arises.
Contracts Can Have Financial Consequences
For business owners, contracts aren’t simply legal documents—they can directly affect cash flow, operating costs and financial commitments.
For example, an equipment lease or finance agreement may create ongoing obligations that need to be factored into the business’s budget and cash flow forecasts.
Similarly, a commercial property agreement could involve rent reviews, outgoings, make-good obligations and other costs beyond the headline rental amount.
Understanding these commitments before signing can help prevent unpleasant surprises later.
What Should Business Owners Do?
The proposed reforms are a reminder that businesses should take contracts seriously.
Before signing a significant agreement:
1. Read the entire contract.
Don’t focus only on the headline price or main commercial terms.
2. Identify your ongoing obligations.
Consider the financial and operational commitments created by the agreement.
3. Look for terms that could create unexpected costs.
Pay particular attention to termination, renewal, price adjustment and default provisions.
4. Ask questions before signing.
If something isn’t clear, seek clarification rather than assuming how the provision works.
5. Get professional advice where appropriate.
A solicitor or other appropriately qualified professional can help assess the legal implications of an important contract.
Stronger Protections, But Due Diligence Still Matters
The proposed changes could strengthen the enforcement of Australia’s unfair contract term laws and give regulators additional tools to address potential breaches.
However, the best protection for a business is still to understand its contractual obligations before signing.
Whether you’re entering into a supplier agreement, equipment lease, commercial property arrangement or finance contract, taking the time to understand the terms can help your business make better-informed decisions and reduce the risk of unexpected costs or disputes.
If you’re considering finance for your business, understanding the loan structure, costs and contractual obligations is just as important as comparing the interest rate. A mortgage or finance broker can help you understand available lending options and compare structures based on your circumstances.
Important information: This article provides general information only and does not constitute legal, financial or business advice. Proposed laws and regulations may change. Businesses should obtain appropriate professional advice before entering into significant contracts.
Lending subject to lender approval, eligibility, terms and conditions. Fees and charges may apply. Approval is not guaranteed.
