Mohammed is a law student, majoring in corporate and commercial law. He has worked in administration and leadership programs, and now writes for Sprintlaw.
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Unfair contract terms can be one of those “hidden” legal risks that sits quietly in your contracts until something goes wrong - a customer dispute, a supplier falling over, a payment issue, or an unhappy small business client pushing back on your standard terms.
Over the last few years, Australia’s unfair contract terms (UCT) regime has shifted from being a compliance “nice to have” into something businesses need to actively manage. The changes that started being talked about and developed from 2021 onwards have now landed in a much tougher regime - and as at 2026, they’re firmly part of the legal landscape for Australian businesses using standard form contracts.
If you use templates, online terms, standard services agreements, supply agreements, or even “just a quick one-pager” you reuse for customers, this matters for you. The key message is simple: it’s not just that an unfair term can be void - there can also be serious financial penalties for proposing, applying, or relying on an unfair term.
Below, we’ll walk you through what changed, what it means in practice, the kinds of clauses that can be risky, and the steps you can take to keep your contracts working for your business (without creating avoidable legal exposure).
What Is The Unfair Contract Terms (UCT) Regime In Australia?
The unfair contract terms regime is designed to stop stronger parties from imposing one-sided terms in certain types of contracts, especially where the other party has limited ability to negotiate.
In Australia, the UCT regime exists in:
- the Australian Consumer Law (ACL) (which sits in the Competition and Consumer Act 2010 (Cth)); and
- the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) for certain financial products and services.
Most small businesses come across the UCT regime through the ACL. It generally applies where you have a standard form contract and the counterparty is either a consumer or a qualifying small business.
What Is A “Standard Form Contract”?
A standard form contract is essentially a “take it or leave it” agreement - the kind you roll out repeatedly, often with minimal negotiation. Think:
- website terms and conditions
- standard quotes and engagement terms
- subscriptions and memberships
- standard supply and procurement agreements
- logistics and delivery terms
- SaaS and platform terms
- franchise-style or reseller templates
A contract can still be “standard form” even if the other side can negotiate minor items (like price or timing). If the overall agreement is largely pre-prepared, it may still fall within the regime.
When Is A Term “Unfair”?
Under the ACL, a term is likely to be unfair if (in broad terms):
- it creates a significant imbalance in the parties’ rights and obligations;
- it is not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and
- it would cause detriment (financial or otherwise) to the other party if relied upon.
This isn’t about whether a term feels annoying or inconvenient. It’s about whether it’s structurally one-sided in a way that the law sees as unjustified.
And importantly, UCT issues often overlap with broader ACL risks like misleading conduct (for example, promises in marketing that don’t match the fine print). If you’re reviewing your contracts anyway, it’s also worth keeping misleading or deceptive conduct front of mind.
What Changed From 2021 Onwards (And What’s Still Relevant In 2026)?
Around 2021, the UCT regime became a major focus for reform. There were growing concerns that “voiding the term” wasn’t enough to deter unfair drafting - because many businesses could still include aggressive clauses and benefit from them until challenged.
Those reforms progressed through 2022 and then took effect in late 2023 (with ongoing enforcement and industry focus continuing into 2026).
1) Unfair Contract Terms Can Now Attract Penalties
This is the biggest practical shift. Historically, if a term was unfair, a court could declare it void (meaning it couldn’t be relied on). But there generally weren’t direct penalties simply for having or using the term.
Now, there can be penalties for businesses that:
- propose an unfair term in a standard form contract;
- apply or rely on an unfair term; or
- purport to apply or rely on an unfair term.
In other words, it’s not only about losing that clause - it’s about the risk of enforcement action and significant financial consequences.
2) The “Small Business Contract” Definition Expanded
The reforms also expanded which contracts qualify as “small business contracts”. That means more B2B contracts are now caught by the UCT regime than before.
As at the current regime (and still relevant in 2026), a contract can be a “small business contract” where, at the time the contract is entered into:
- at least one party employs fewer than 100 employees (including casuals on a regular and systematic basis); or
- at least one party has annual turnover of less than $10 million.
If you sell to other businesses, that “small business customer” category is far broader than many people expect. Even if you feel like you’re dealing with a “serious” business, they may still fall under the thresholds.
3) More Power To Courts (And Flow-On Effects Across Your Contract Set)
Courts can also make broader orders that don’t just affect a single contract. For example, depending on the proceedings and findings, there can be orders impacting:
- the way you use similar terms across your contract suite;
- the way you communicate with counterparties about those terms; and
- compliance programs or corrective action.
For businesses that use templates at scale (especially online businesses), this is a big deal - because one problematic clause can create risk across hundreds or thousands of customer relationships.
Which Businesses And Contracts Are Most Exposed?
If you’re a small business owner, you might assume the UCT regime only affects “big companies.” In reality, plenty of small and mid-sized businesses are exposed because they use standard terms as part of normal operations.
You’re more likely to face UCT risk if you:
- use standard terms with customers or clients (even if you “sometimes tweak them”);
- operate online (SaaS, eCommerce, subscriptions, platforms, marketplaces);
- have recurring services with renewals, auto-renewals, or price changes;
- work with small business clients (agencies, consultants, trades, professional services); or
- have complex operational risk and try to manage it via strict legal clauses (rather than balanced drafting).
Common “High Risk” Contract Types
UCT issues often show up in:
- customer terms and conditions (including online checkout terms)
- service agreements and ongoing retainer contracts
- supplier agreements where one party has the stronger bargaining position
- subscription contracts with unilateral changes or locked-in renewals
- cancellation policies and “no refund” structures
Cancellation-related clauses are especially sensitive if they’re drafted broadly. If you rely on cancellation fees or strict cancellation windows, it’s worth pressure-testing whether your approach aligns with the ACL and fairness principles, including the practical guidance around cancellation fees.
What Do Unfair Contract Terms Look Like In Real Life?
UCT problems are usually not created by one “evil” clause. They’re more often created by a pattern: the contract consistently gives one party discretion, protection, and exit options - while tying the other party’s hands.
Below are some of the most common categories of terms that can be challenged (depending on how they’re drafted and used).
Unilateral Variation Clauses (You Can Change Anything, Anytime)
Clauses that let you change price, scope, features, delivery timeframes, or key obligations without giving the other party a meaningful right to exit or renegotiate can be high risk.
This often comes up in subscription terms and service agreements where the provider wants flexibility - which is understandable - but the drafting needs to be balanced and defensible.
Automatic Renewal With Unfair Lock-In
Auto-renewal clauses aren’t automatically “unfair,” but they can be risky where:
- renewal periods are long;
- the notice window is tight or unclear;
- termination rights are heavily restricted; or
- fees increase at renewal without clear notice.
One-Sided Termination Rights
A classic UCT example is where one party can terminate for convenience (or for vague reasons), while the other party can’t terminate at all - or only if they pay large termination charges.
Sometimes the fix is as simple as making termination rights more mutual, or tying termination triggers to objective events (like material breach that isn’t remedied).
Broad Indemnities And Risk-Shifting Clauses
Indemnities are common in commercial contracts, but they can become unfair where they’re drafted in a way that forces one party to cover losses that are outside their control (or disproportionate to what they’re actually responsible for).
Relatedly, limitation of liability drafting is an area where we often see “overreach,” especially in templates. If your agreement includes very strong caps, exclusions, or “we’re not liable for anything” language, you should review it carefully in light of the ACL and UCT regime, and also how it interacts with limitation of liability clauses.
Set-Off And Payment Control Clauses
Some standard terms give one party broad rights to withhold payment, apply set-off at their discretion, or make unilateral deductions. Depending on context, this can be challenged as unfair - particularly where the other party has no equivalent mechanism or dispute pathway.
If set-off is important to your business model, you’ll want it drafted in a way that is clearly connected to legitimate interests and operational realities, and consistent with set-off clauses best practice.
Terms That Quietly Contradict Your Sales Pitch
It’s also risky when the contract includes terms that undermine what you’re telling customers in marketing, sales calls, or proposals.
For example, if your website says “cancel anytime” but your terms impose large cancellation fees or a rigid lock-in, you may face issues beyond UCT - including ACL provisions around false or misleading claims, such as the conduct covered by section 29 of the ACL.
How Can You Make Your Standard Terms UCT-Compliant Without Losing Protection?
This is the part many business owners worry about: “If we soften our contract, are we just taking on more risk?”
In practice, UCT compliance is usually not about giving up protection - it’s about making sure your protection is:
- connected to a legitimate business interest;
- proportionate (not overkill);
- clearly explained; and
- balanced with appropriate rights for the other party (like notice and exit).
Step 1: Identify Your “Standard Form” Documents
Start by listing every template you use, including:
- website terms
- service agreements / engagement letters
- statements of work that incorporate standard terms
- supply and procurement templates
- reseller or referral templates
A lot of businesses only think of their “main contract,” but the risk often sits in the documents that get sent out quickly and repeatedly.
Step 2: Flag Clauses That Give You Broad Discretion
As a quick self-check, search your templates for phrases like:
- “at our sole discretion”
- “we may change…”
- “we may suspend…”
- “no refunds”
- “you must indemnify us for…”
- “we are not liable for…”
- “we may terminate at any time”
These phrases aren’t automatically unlawful, but they’re common markers for clauses that should be reviewed more closely.
Step 3: Add Guardrails (Notice, Reasons, And Exit Rights)
If your business needs flexibility, you can often keep it by adding guardrails such as:
- reasonable notice before changes take effect;
- clear reasons for when you can vary, suspend, or terminate;
- a customer exit right if a change is material and adverse;
- a fair dispute pathway before drastic action is taken.
This kind of drafting is also commercially healthy: it reduces disputes because it feels fair to the other side and gives you a clearer process to rely on if something goes wrong.
Step 4: Make Sure Your Contract Is Actually “Legally Doing The Job”
UCT is one lens. But it’s not the only lens.
Your agreement also needs to be enforceable, internally consistent, and aligned with how you operate in practice. If you’re refreshing your templates anyway, it’s worth revisiting the fundamentals of what makes a contract legally binding - because even a “perfect” UCT-compliant clause won’t help if the contract structure is shaky.
Step 5: Get A UCT-Focused Contract Review (Especially If You’re Scaling)
If your standard terms are a core part of your business (particularly if you have high transaction volume), a targeted review can be one of the most cost-effective risk controls you put in place.
From a practical perspective, a proper UCT review and redraft typically looks at:
- whether the contract is likely “standard form”;
- which clauses are most likely to be challenged as unfair;
- how to re-draft the clause so it remains commercially protective but legally defensible; and
- whether the contract matches your actual business processes and customer experience.
Key Takeaways
- The unfair contract terms regime applies to many standard form contracts in Australia, including common customer and B2B templates used by small businesses.
- Reforms developed from 2021 onwards have resulted in a tougher regime, including penalties for proposing, applying, or relying on unfair contract terms.
- More contracts are now captured as “small business contracts,” meaning many B2B deals can fall within the UCT regime even if they feel “commercial.”
- High-risk clauses often include unilateral variation rights, one-sided termination, broad indemnities, aggressive limitations of liability, and strict cancellation terms.
- UCT compliance is usually about adding reasonable guardrails (notice, reasons, exit rights) rather than giving up protection entirely.
- Reviewing your standard terms now can reduce disputes, improve customer trust, and protect you from enforcement and penalty risk later.
If you’d like help updating your standard contracts for the unfair contract terms regime, reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
