When you’re running a small business, contracts are everywhere. They show up in your supplier arrangements, customer terms, software subscriptions, equipment hire, commercial leases, and even your finance documents.
And because you’re often dealing with larger suppliers (or using their pre-written templates), it’s easy to feel like you have to “take it or leave it”. But in Australia, unfair contract term laws can protect small businesses in many common contract situations - particularly where you’re asked to sign a standard set of terms.
This article breaks down unfair contract term examples that Australian small businesses should watch for, explains what an unfair contract term is, and shares practical steps you can take to reduce risk before you sign.
What Is An Unfair Contract Term?
In simple terms, an unfair contract term is a clause in a contract that creates a significant imbalance between the parties, isn’t reasonably necessary to protect the advantaged party’s legitimate interests, and would cause detriment (financial or otherwise) if relied on.
In Australia, unfair contract term protections sit mainly in:
- the Australian Consumer Law (ACL) (Schedule 2 of the Competition and Consumer Act 2010 (Cth)) for most goods and services contracts; and
- the ASIC Act (for many financial products and services).
While the legal tests are detailed, unfair contract terms often have a familiar “feel” to them. They’re usually:
- buried in fine print,
- non-negotiable (or presented as non-negotiable), and
- heavily one-sided.
Unfair contract terms issues commonly come up in standard form contracts (think: terms you sign without negotiating, like many “click to accept” agreements or template supply contracts).
It’s also important to remember that unfair contract terms can apply to business-to-business contracts, not just consumer contracts. However, the rules generally apply where the agreement is a small business contract and is also standard form.
As a general guide, a contract can fall into the “small business contract” category if:
- one party is a small business (commonly, fewer than 100 employees or under $10 million turnover); and
- the upfront price payable under the contract is at or under the relevant threshold (often $5 million).
There are details and exceptions, and the definition can be technical - so it’s worth getting advice if you’re unsure whether your contract is in scope.
If you’re reviewing your contracts generally (including whether they’re enforceable and properly formed in the first place), it also helps to understand what makes a contract legally binding.
When Are Unfair Contract Terms A Risk For Small Businesses?
Unfair contract terms are most likely to be a problem when you’re dealing with a contract that:
- is offered on a “standard” or “template” basis,
- is prepared by the other side (often a larger business), and
- doesn’t give you a real opportunity to negotiate.
Whether a contract is “standard form” depends on factors like who prepared it, whether it was offered on a take-it-or-leave-it basis, and whether you had a real chance to negotiate important terms (not just minor details).
From a small business perspective, these risk areas come up a lot in:
- supplier or distribution agreements (especially where the supplier controls pricing, stock, or delivery rules)
- software and platform subscriptions (SaaS tools, marketing tools, payment platforms)
- service provider agreements (IT, marketing, consultants, maintenance providers)
- equipment hire / service contracts
- customer-facing terms (particularly if you’re using templates without tailoring them to your actual practices)
Even where a clause looks “normal” in an industry, it can still be risky if it’s drafted too broadly or operates unfairly in practice.
Examples Of Unfair Contract Terms (And Why They’re A Problem)
Below are some common examples of unfair contract terms that small businesses often see in standard form agreements. Keep in mind that whether a clause is unfair depends on the full contract and the context - but these are red flags worth taking seriously.
1. Unilateral Price Increase Clauses
Example: “We may increase our fees at any time by giving you notice. You must pay the increased fees to continue using the service.”
Why it’s a risk: If the other party can increase prices whenever they want, and you can’t exit without a penalty (or you’re locked in), the risk is pushed entirely onto you. In a small business context, this can seriously impact cash flow and forecasting.
What to look for:
- Are price increases capped (e.g. CPI or a defined percentage)?
- Do you have a clear right to terminate if you don’t accept the increase?
- Is the notice period reasonable?
2. Unilateral Variation Clauses (They Can Change The Contract Anytime)
Example: “We can change these terms at any time. Continued use of our services means you accept the new terms.”
Why it’s a risk: This clause can make it impossible to know what you actually agreed to long-term. If the other party can change obligations, service scope, or fees without genuine consent, you may be exposed to unexpected costs or compliance obligations.
Practical tip: Variation clauses are more defensible when they’re limited to specific things (like technical updates), supported by notice, and paired with a termination right.
3. One-Sided Termination Rights
Example: “We can terminate this agreement for convenience at any time. You may only terminate at the end of the minimum term with 60 days’ notice.”
Why it’s a risk: If the other party can walk away whenever it suits them, while you’re locked in, you carry the commercial risk. This is especially damaging if you’ve invested in onboarding, stock, marketing, or training to support the relationship.
What to look for:
- Are termination rights mutual?
- If one party has a “for convenience” termination right, is there compensation or a longer notice period?
- Do you have a workable exit pathway if the arrangement stops being viable?
4. Automatic Renewal With Tricky Opt-Out Rules
Example: “This agreement renews for another 12 months unless you give notice at least 90 days before the end of the term.”
Why it’s a risk: Auto-renewal isn’t always unfair, but it can become a problem when the opt-out window is unreasonably early, hidden, or paired with large termination fees.
Practical tip: Put renewal dates and notice deadlines in your contract management system (even a calendar reminder is better than nothing).
5. Broad Indemnities That Make You Responsible For Everything
Example: “You indemnify us against all claims, losses, and expenses arising from your use of the services, whether or not caused by our negligence.”
Why it’s a risk: Indemnities can be commercially reasonable in some situations, but overly broad indemnities can push liability onto you even where the other party is at fault.
This often appears alongside aggressive limitation of liability clauses that protect the other party while leaving you exposed.
What to look for:
- Does the indemnity apply even if the other party contributed to the loss?
- Is it limited to reasonable, foreseeable losses?
- Is it limited to third party claims (rather than “everything”)?
6. Limitation Of Liability Clauses That Only Protect The Other Side
Example: “Our total liability is limited to $100. Your liability is unlimited.”
Why it’s a risk: Limitation clauses are common, but they should be balanced and proportionate. If the supplier’s liability is capped at a tiny amount regardless of the damage they cause, you may have no meaningful remedy if things go wrong (for example, service outages, defective products, or serious delays).
Practical tip: A more balanced approach is to cap liability to fees paid in a period (e.g. 12 months), or to a reasonable insurance-backed amount, and to carve out certain things carefully (like fraud).
7. “Sole Discretion” Clauses (They Decide Everything)
Example: “We may determine in our sole discretion whether you have complied with this agreement. Our decision is final.”
Why it’s a risk: Clauses that allow the other party to decide disputes, performance issues, or compliance questions with no objective standard can put you in a very weak position. This can be particularly problematic if it triggers penalties, suspension, or termination.
What to look for:
- Are there clear standards for decision-making?
- Is there a dispute resolution process?
- Do you have a chance to remedy alleged breaches?
8. Unfair Payment Terms (Including Interest, Late Fees, Or Set-Off Rights)
Example: “Invoices are payable immediately. We may charge interest at 20% per annum and recover all collection costs on an indemnity basis.”
Why it’s a risk: Strong payment clauses can be fair if they reflect real costs and are transparent. But harsh payment terms combined with limited rights for you (like no right to dispute an invoice) can be one-sided.
It’s worth making sure your own customer-facing payment clauses are also clear and compliant - for example, your terms of trade and invoice payment terms.
9. “No Refund” Or Excessive Cancellation Fee Clauses
Example: “All payments are non-refundable under any circumstances.”
Why it’s a risk: Blanket “no refund” clauses can be problematic, especially if they’re inconsistent with how the law treats cancellations, failures to supply, or service issues.
If your business charges cancellation fees, it’s important those fees are reasonable and clearly disclosed upfront. The same goes for reviewing the other side’s cancellation and termination penalty clauses. (If this issue comes up often in your business, it’s worth understanding cancellation fees more generally.)
10. One-Sided Evidence Clauses
Example: “Our records are conclusive evidence of amounts owing and service usage.”
Why it’s a risk: This can make it very hard to challenge incorrect invoices, service reports, or alleged breaches. While parties can agree on evidentiary mechanisms, a clause that makes the other side “judge and jury” can be unfair, particularly where you don’t have access to the underlying data.
How To Spot Unfair Contract Terms Before You Sign
You don’t need to be a lawyer to pick up early warning signs. When you’re reviewing a proposed contract, try asking yourself a few practical questions.
Does The Contract Feel “One-Way”?
If the contract is full of obligations on you, but very few obligations on them, pause. A balanced contract usually:
- sets out responsibilities for both parties,
- shares risk in a commercially sensible way, and
- gives both parties realistic exit rights.
Do Important Rights Depend On Their “Sole Discretion”?
Whenever you see wording like “sole discretion”, “absolute discretion”, or “we may decide”, check what flows from that power. If it affects pricing, suspension, termination, or penalties, it’s worth getting advice.
Are You Locked In, But They’re Not?
Look for mismatched rights around:
- termination for convenience,
- renewals and notice periods,
- minimum terms, and
- termination fees.
Is Liability Capped For Them, But Unlimited For You?
Many standard form contracts are drafted so the other party has a tight liability cap, broad disclaimers, and strong indemnities from you.
That combination can be particularly risky for small businesses, because it can leave you paying for problems you didn’t cause - with no meaningful remedy.
What Can You Do If You Find Unfair Contract Terms?
If you spot a clause that looks unfair, you generally have three practical options: negotiate, restructure, or walk away.
It’s also helpful to understand the legal consequences. If a court finds a term is unfair under the ACL/ASIC Act, that term will generally be void (meaning it can’t be relied on). The rest of the contract may continue if it can operate without the unfair term.
Importantly, for contracts entered into (or renewed/varied) on or after 10 November 2023, there can also be civil penalties for businesses that propose, apply, or rely on unfair contract terms in standard form consumer or small business contracts. Penalties can be significant, so it’s worth treating UCT compliance as a real risk issue (including if you use standard terms with your own customers).
1. Ask For The Clause To Be Amended (Yes, You Can Ask)
Even if a contract is presented as “standard”, many suppliers will negotiate if you ask clearly and early (especially if you’re a valuable customer or you’re signing a longer-term deal).
You can propose small, targeted changes, like:
- adding a termination right if fees increase,
- reducing notice periods,
- making termination rights mutual, or
- adjusting liability caps so they’re more proportionate.
2. Fix The Commercial Position (Not Just The Legal Drafting)
Sometimes the best solution isn’t only to tweak wording - it’s to change the commercial structure.
For example, if you can’t get a price increase clause removed, you might reduce your risk by negotiating:
- a shorter term,
- a staged rollout rather than a full commitment upfront, or
- a defined service level with credits if performance drops.
3. Put Stronger Contracts In Place On Your Side
Unfair contract terms aren’t only a risk when you’re the “weaker” party. If you’re issuing standard terms to customers or clients, you also want to make sure your own terms are fair and enforceable - and UCT-compliant where they apply.
For many small businesses, this means having tailored documents such as:
- Customer terms and conditions (so your payment, delivery, and cancellation processes are clear)
- Service agreements (so scope changes and timelines don’t become disputes)
- Website legal terms (if you sell or take enquiries online)
If you’re using a standard set of terms across your customer base, having properly drafted Business Terms can help you reduce disputes and improve clarity from the start.
4. Get A Lawyer To Review High-Risk Agreements
Some contracts deserve extra attention because the downside is simply too big. That usually includes agreements involving:
- high-value supply arrangements,
- long-term commitments,
- exclusive deals,
- significant liability exposure, or
- contracts that could interrupt your ability to trade if terminated or suspended.
In those situations, a Contract Review can be a cost-effective way to identify and fix unfair contract terms before they turn into expensive disputes.
Key Takeaways
- Common unfair contract term examples include unilateral price increases, one-sided termination rights, broad indemnities, and “sole discretion” clauses that let the other party control outcomes.
- An unfair contract term is typically one that creates a significant imbalance, isn’t reasonably necessary to protect legitimate interests, and could cause detriment to the small business if relied on.
- Unfair contract terms risks are most common in standard form contracts where you don’t get a real chance to negotiate - and where the contract is a consumer or small business contract under the ACL/ASIC Act.
- Before signing, look closely at clauses about price changes, auto-renewals, termination fees, dispute processes, and liability caps.
- If you find a problematic clause, you can often negotiate targeted amendments or restructure the deal to reduce risk.
- Strong, tailored contracts on your side (like customer terms) can also reduce disputes and help keep your business compliant.
If you’d like help reviewing a contract for unfair terms (or drafting fair, clear terms for your customers), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
