It is well established in law that the Court has the power to void terms in contracts (or entire contracts) if they are unfair. This principle has been enshrined in Australian Consumer Law, by virtue of the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth). The regime applies to contracts entered into after 12 November 2016, or contracts entered into prior to 12 November 2016 and renewed or varied after that date.

But what makes a term, or an agreement, unfair? And are all agreements covered by the unfair contract regime?

Generally speaking, an unfair term is one that:

• does not fairly divide or balance the parties’ rights and obligations arising out of the contract;
• is not reasonably necessary to protect the legitimate interests of the party to whom the term favours; or
• would cause detriment or loss, if applied or relied upon, to the party to whom the term does not favour.

Some examples of terms that are generally accepted as being unfair under the regime are terms that allow one party to unilaterally:

• vary the terms of the agreement;
• assign the agreement to another party without the consent of the other party;
• renew or not renew the agreement; and
• terminate the agreement without reasonable cause.

The types of contracts captured by the regime are ‘small business contracts’ and ‘standard form’ contracts. A small business contract is a contract where:

• one party is a small business (i.e. employs less than 20 staff, including casual employees employed on a regular and systematic basis); and,
• the upfront price payable is no more than $300,000 for a 12-month contract, or $1 million for a contract where the term exceeds 12-months.

A standard form contract is one that has been prepared by one party and offered to another party on a ‘take it or leave it’ basis.

The above criteria will more often than not capture most franchise agreements, as franchisors generally have a standard franchise agreements that they offer to all prospective franchisees, and in the interest of maintaining uniformity in the franchise, the franchisors will generally resist any negotiations regarding the terms of the franchise agreement.

If there are negotiations as to the terms of the contract, or the contract is altered to accommodate a party’s particular circumstances or features, then it is less likely the contract will be considered a ‘standard form’ contract. The extent and nature of negotiations required to bring a contract outside the realm of being a ‘standard form’ contract, is open for debate and the issue would likely be determined on a case-by-case basis having regard to all of the circumstances.

If you are about to purchase a franchise and need advice in relation to the franchise agreement, or if you are in a dispute with your franchisor about your rights and/or obligations under the agreement, Rose Litigation Lawyers can assist with advising you of your options and negotiating a fair outcome.