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New Unfair Contract Laws – More Changes for the Franchise Sector

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By Raynia Theodore, Principal, MST Lawyers

In a joint Press Release issued on Friday 20 March 2015 Prime Minister Tony Abbott and the Minister for Small Business, Bruce Billson, announced that the Commonwealth Government will extend the unfair contract protections currently available to consumers to cover the small business sector.

Prime Minister Abbott and Minister Billson state in the Press Release that “like consumers, small businesses are often presented with ‘take it or leave it’ contracts, with little scope to negotiate just and fair terms. Small businesses often lack the time, legal expertise or bargaining power to resist enforcement of unfair terms against them”.

The new laws, which the Government hopes to introduce on 1 July 2015, will apply to “standard form contracts”.  Standard form contracts are contracts that are generally not negotiable.  Given that franchise agreements are usually in a standard form and are provided to franchisees on a “not negotiable” basis the new laws are likely to extend to franchise agreements.

The new laws will give courts the ability to declare void, terms within standard form contracts that are unfair.  These terms may include clauses allowing one party to unilaterally vary the terms of the contract (for example the fees payable or key terms) or clauses allowing only one party to terminate the contract early. Such clauses are often found in franchise agreements.

Whether or not the terms of a contract are unfair will depend on the particular circumstances of each contract, including whether the parties freely negotiated the terms of their contract and how clearly spelt out the “unfair” terms are.  It is important to note that if some of the terms in a contract are found to be unfair this will not invalidate the entire contract.

These changes come hot on the heels of the introduction of the new Franchising Code of Conduct and will require franchisors to review their franchise agreements to identify any unfair terms that may fall foul of the new laws and amend or remove such terms as required. 

The Government has provided $1.4 million to the Australian Competition and Consumer Commission to ensure businesses comply with the new laws.

If you require any advice on contracts or franchising matters please feel free contact our Corporate Advisory & Franchising team by email franchise@mst.com.au or by telephone +61 8540 0200.