Let’s say you’re a business who engages online customers on a daily basis. You’re running a website with users from across the globe, however they must agree to terms and conditions before they can use and purchase anything from your store.
Some of these terms might be around price, delivery of goods and rules around refunds. This kind of agreement would be considered a standard form contract. It’s simple, efficient and usually for arrangements where negotiation of terms is not really a priority (such as e-commerce).
It’s common for institutions to use these contracts and if done correctly, they can be advantageous. However, there are a number of things to be aware of when using standard form contracts.
What Is A Standard Form Contract?
A standard form contract is an agreement where one party has prepared the agreement and the other party has had little to zero input regarding the terms of the contracts. Standard form contracts will usually be similar to other contracts the business offers – this is done largely for efficiency.
You may have heard the term “boilerplate contracts”, “take it or leave it contracts” or “contracts of adhesion”- these all refer to standard form contracts.
What Makes It A Standard Form Contract?
There is no legal definition for a standard form contract, however in order for an agreement to be considered a standard form contract, it will generally have a value of less than $300,000 unless the contract terms is for more than one year, in which case it is $1 million.
The agreement will regard a transaction of goods, services or land. This is also applicable for a small business that has less than twenty people.
The terms of the contract itself will point to the imbalance of power between the parties. In order to assess whether an agreement is a standard form contract, a court will determine the following:
- Whether the contract was entirely prepared by the dominant party.
- If the other party had any space to negotiate the terms of the contract prior to signing it.
- If it really was a ‘take it or leave it’ scenario.
How Is It Different From Other Types of Contracts?
Contracts that are not standard form contracts will likely be tailored to the situation it’s being used for. For example, period contracts or period trade contracts will contain specific work, quotations and be dependent on the circumstances surrounding the contract.
Therefore, a standard contract is usually not applicable here as the agreement needs to be individualised.
There are certain types of contracts that cannot be considered ‘standard form contracts’, such as insurance contracts or constitutions. This is mainly because they need to be tailored to the individual and their circumstances, whereas a standardised contract does not allow much room for negotiation around this.
When Do You Use Standard Form Contracts?
Standard contracts will meet some kind of industry standard. These contracts are used for consumers, general terms and conditions, company policies and other standard agreements. Standard form contracts are used when there are multiple uses for the contract, but no need to specify and tailor it for each individual.
Benefits Of Using A Standard Form Contract In Your Business
There are a number of benefits to using a standard form contract in your business. Firstly, it allows for consistency in your dealings.
Furthermore, having standards for contracts is highly efficient. Drafting new contracts is a meticulous and often time-consuming process. Having a standard form of contracts can save you a lot of stress!
Unfair Contract Terms – How Do They Work?
Standard form contracts carry a greater risk of containing unfair contract terms. This is largely due to the fact that the contract has not been negotiated equally by two parties but rather, one has determined all the terms and presented it to the other party. There is a vast difference in power between the parties.
According to the ACCC, an unfair contract term is one that:
- Causes a significant imbalance in the rights and obligations of the parties to the contract
- Is reasonably unnecessary to protect the interests of the party receiving the advantage
- Causes detriment to a small business when they rely upon the term
If a standard form contract is found to have unfair terms, then legal consequences will apply. For example, the contract can be severed, you can be issued certain fines or even sued for damages. If a signee to one of your contracts feels they have been treated unfairly, then it could result in lengthy and draining legal proceedings. It’s best to avoid this and have a legal professional help draft your contracts.
Let’s say a Sydney startup enters into a four year contract with a software service provider. The software business includes a term in their contract that allows them to increase their price whenever they want, and the startup cannot negotiate or terminate the contract.
This is likely to constitute an unfair contract term as the startup has almost no power over an important term of the contract, that is, the compensation to be paid.
If you are thinking of drafting a standard form contract or think you should have your existing ones reviewed for peace of mind, we’ve got you covered. It’s always important for businesses to make sure they are avoiding any unfair contract terms in their agreements to comply with the ACCC’s requirements, so feel free to chat to one of our lawyers today.
If you would like a consultation on your options going forward, you can reach us at 1800 730 617 or firstname.lastname@example.org for a free, no-obligations chat.
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