Upcoming changes to national laws mean that some terms in your standard form contracts may be deemed unfair and consequently not enforceable against the other party. The changes come into effect on 12 November 2016.
WILL THESE NEW LAWS APPLY TO MY BUSINESS?
The new laws apply to standard form contracts entered into with small businesses (a business with less than 20 employees) which have a contract price of up to $300,000 (or up to $1 million for contracts lasting longer than 1 year). Standard form contractsare contracts essentially offered to a party on a ‘take it or leave it’ basis.
WHAT IS AN UNFAIR TERM?
It will be up to the courts to determine whether a particular term is unfair, however, terms which will offend the new laws are those which:
- cause a significant imbalance in the parties’ rights and obligations under the contract; and
- are not reasonably necessary to protect the legitimate interests of the party benefited by the term; and
- would cause detriment (financial or otherwise) to a party if relied upon.
HOW WILL THESE LAWS AFFECT CONSTRUCTION CONTRACTS?
The typical terms in construction contracts which may be unfair include terms relating to time bars (particularly where there are extensive notification requirements);variations to scope (mainly where one party can unilaterally act); termination andassignment (particularly where only one party can assign).
WHAT HAPPENS IF MY CONTRACT HAS AN UNFAIR TERM?
A term deemed unfair will essentially be void meaning you cannot take the benefit of the term. The remainder of the contract will continue to bind the parties if this is possible (which it may not be). In this case your business could: be left without a remedy; face a claim for damages and costs and suffer damage to its reputation.