Drafting standard form contracts and what the law requires of your business

If your business sells goods or services on terms you drafted once and reuse for every customer, you are dealing in standard form contracts. That puts you inside the unfair contract terms regime in the Australian Consumer Law (the ACL), which sits in Schedule 2 of the Competition and Consumer Act 2010 (Cth). Since November 2023 the stakes have been real: proposing, applying or relying on an unfair term in a standard form contract is now a contravention that can draw a penalty of up to $100 million for a company.

This article sets out the obligations that come with using a standard form contract. We cover when the regime reaches you, the drafting duties it imposes on your business, what happens if you get it wrong, and a practical checklist you can run against your current terms.

When the unfair contract terms regime applies to you

A term is caught by the regime only if three things line up. The contract must be a standard form contract, it must be a consumer contract or a small business contract, and the term itself must be unfair. If any element is missing, the term sits outside this regime, although other parts of the ACL may still apply to it.

There is no exhaustive statutory definition of a standard form contract. Instead, section 27 of the ACL lists the factors a court must weigh, and it starts from a presumption that favours the other side. If a party alleges a contract is standard form, it is presumed to be standard form unless you prove otherwise.

In deciding the question, the court must take into account:

• Bargaining power: whether one party has all or most of the bargaining power relating to the transaction.
• Repeated use: whether one party has made other contracts in the same or substantially similar terms, and how many.
• Prepared in advance: whether the contract was prepared by one party before any discussion about the transaction occurred.
• Take it or leave it: whether the other party was effectively required to accept or reject the terms in the form they were presented.
• No real negotiation: whether the other party was given an effective opportunity to negotiate the terms.
• One size fits all: whether the terms take into account the specific characteristics of the other party or the particular transaction.

A contract does not stop being standard form just because you offered minor tweaks, let a customer pick a term from a range of options, or negotiated a different deal with one particular customer. Section 27(3) is explicit that these things do not, by themselves, take a contract out of the category. If you use the same template for most of your transactions, a court can treat it as standard form even where an individual contract was negotiated.

The regime then applies to two kinds of contracts:

• Consumer contracts: a contract for the supply of goods or services, or an interest in land, to an individual whose acquisition is wholly or predominantly for personal, domestic or household use.
• Small business contracts: a contract for the supply of goods or services, or an interest in land, where at least one party employs fewer than 100 people or had a turnover of less than $10 million in its last income year. Part-time staff count proportionally, and casuals only if they work on a regular and systematic basis.

The small business test looks at either party to the contract. A large supplier dealing with a small business customer is inside the regime, even though the supplier itself is far above the thresholds. That is why the November 2023 changes matter to businesses of every size: the old contract value caps were removed and the employee and turnover thresholds were raised.

Timing matters too. The prohibitions and penalties apply to contracts made or renewed on or after 9 November 2023, and to any term varied or added after that date. If your template predates the changes, the clock starts at the next renewal or variation, which is why reviewing it before then is the safer path.

Duty 1: Keep excluded terms genuinely narrow

Not every term can be attacked. Section 26 of the ACL excludes a term from the regime to the extent that it:

• defines the main subject matter of the contract;
• sets the upfront price payable under the contract; or
• is required, or expressly permitted, by a Commonwealth, state or territory law.

The upfront price is the consideration disclosed at or before the time the contract is entered into, and it does not include amounts contingent on a future event, such as a fee that only applies if the customer breaches the contract.

The drafting trap is the phrase "to the extent". The exclusion only protects a term that genuinely does the job of defining what is being sold or what it costs. You cannot make a one-sided term safe by labelling it part of the main subject matter. A court looks at substance, not the heading on the clause. If a term does more than define the product or price, the exclusion will not save it.

Duty 2: Make sure no term is unfair

This is the core obligation. Section 24 of the ACL says a term is unfair if all three of the following apply:

• it would cause a significant imbalance in the parties' rights and obligations arising under the contract;
• 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 it were applied or relied on.

The second limb carries a surprise for the drafting party. Section 24(4) reverses the onus: a term is presumed not to be reasonably necessary to protect your legitimate interests unless you prove otherwise. If a term is challenged, the burden of justifying it sits with the business that wrote it.

The court must also take into account how transparent the term is and the contract as a whole. A term that looks harsh in isolation can be saved by context, for example where a matching right runs the other way, while a one-sided term buried in fine print is harder to defend.

Section 25 gives examples of the kinds of terms that may be unfair, including terms that let one party:

• vary the terms of the contract, or terminate it, while the other party has no equivalent right;
• renew or not renew the contract unilaterally;
• penalise the other party for breach or termination;
• vary the upfront price without giving the other party a right to terminate; or
• limit the other party's right to sue or to adduce evidence.

The list is illustrative, not a banned list. A term on the list is not automatically unfair, and a term off the list can still be unfair. Each term is tested on its own facts.

The practical counter to the grey list is balance. If your business reasonably needs the power to change the product or service it supplies, give the customer the matching right to exit without penalty when you use it. If you need automatic renewal to keep subscriptions running, tell the customer clearly and let them opt out easily. The ACCC makes exactly this point in its guidance: check what the customer gets in return for every power the contract gives you.

Duty 3: Draft transparently

Transparency is a legal requirement, not a stylistic preference. A term is transparent if it is expressed in reasonably plain language, is legible, is presented clearly, and is readily available to any party affected by it. The court must consider transparency when deciding whether a term is unfair.

The practical steps follow directly from that definition. Write clauses in plain English rather than dense legal drafting. Keep the font readable and the layout clear. Provide the full contract to the customer before they commit, and make the current version easy to find online. If a key term such as an automatic renewal or a large exit fee sits in the fine print of a long document, that cuts against transparency and makes the term harder to defend.

Duty 4: Give the other party a real opportunity to consider the terms

The factors in section 27 ask whether the customer had an effective opportunity to negotiate. You cannot negotiate individually with every customer, and the regime does not require it. But you can structure your processes so the customer gets the contract in advance, with time to read it, and so the significant terms are drawn to their attention at the point of signing and again at renewal.

This duty does double work. A customer who was handed the contract before signing and had their attention drawn to the important terms is less likely to succeed with an unfairness claim, and the same facts help show the contract was not simply imposed. Renewal is the moment most businesses slip: an automatic renewal term that is not flagged when the renewal happens is a recurring source of complaints and enforcement attention.

What happens if a term is found to be unfair

The first consequence is that the term is void. Section 23 provides that an unfair term of a consumer or small business standard form contract has no effect, and the rest of the contract continues to bind the parties if it can operate without the term. The customer keeps the benefit of the contract; the business loses the term.

Since 9 November 2023 the consequences go further than the term itself. It is a contravention to make such a contract with an unfair term you proposed, and a separate contravention to apply or rely on an unfair term. Each unfair term counts as a separate contravention, so a contract carrying three unfair terms exposes the business to three separate penalty calculations.

The maximum penalties are set by section 224 of the ACL. An individual faces up to $2.5 million per contravention. A body corporate faces the greatest of $100 million, three times the value of the benefit obtained that is reasonably attributable to the contravention, or 30 per cent of adjusted turnover during the breach period. The $100 million limb is recent: the Treasury Laws Amendment (Doubling Penalties for ACCC Enforcement) Act 2026 (Cth) doubled the fixed maximum from $50 million, in force from 28 March 2026.

The court can also declare a term unfair on application by a party or the regulator, and can make injunctions and compensation orders. The ACCC enforces the regime for most goods and services, and ASIC runs a parallel regime under the Australian Securities and Investments Commission Act 2001 (Cth) for financial products and services.

The enforcement record is not theoretical. In 2022 the Federal Court declared that 38 terms used by Fujifilm Business Innovation Australia and Fujifilm Leasing Australia in contracts with many thousands of small businesses were unfair, and home builder Fowler Homes gave the ACCC a court-enforceable undertaking admitting its standard building contract contained unfair terms. The courts have also applied the section 27 factors in earlier cases such as ACCC v Chrisco Hampers Australia Ltd [2015] FCA 1204 and ACCC v JJ Richards & Sons Pty Ltd [2017] FCA 1224, the latter involving terms in the 26,000 standard form waste management contracts the company had entered into, including small business contracts.

A checklist for reviewing your standard form contract

Run this checklist against every template you currently use:

• List every template you use, including terms on your website, in invoices, in renewal notices and in sign-up forms.
• Work out which contracts are consumer contracts or small business contracts under section 23.
• Test each term against the three-part test in section 24 and the examples in section 25.
• Confirm that any reliance on the exclusions in section 26 is limited to genuine main subject matter and upfront price terms.
• Add counter-balancing rights wherever the contract gives you a unilateral power to vary, terminate or renew.
• Check readability: plain language, legible text, clear presentation, and availability before the customer commits.
• Draw significant terms to the customer's attention at sign-up and again at renewal.
• Diarise the review so it happens before the next renewal date, given the prohibitions bite from 9 November 2023.

How a lawyer can help

A commercial lawyer can work through your templates clause by clause against sections 24 and 25, tell you which terms carry real risk, and redraft them with counter-balancing rights that protect your legitimate interests without triggering the regime. A lawyer can also advise on whether a particular contract is likely to be treated as standard form, design sign-up and renewal processes that give customers a genuine opportunity to read the terms, and act for you if the ACCC or ASIC comes calling, including responding to investigations and negotiating undertakings.

The term to check first

If you only change one thing this week, look at your variation and renewal clauses. Terms allowing unilateral variation and automatic renewal appear again and again in enforcement outcomes, and they are the ones most likely to fail the test in section 24. Remember the burden is on you: if the term is challenged, you must prove it is reasonably necessary to protect your legitimate interests. Pull your standard terms today, find the clause that lets you change the deal or keep the customer signed up, and ask what the customer gets in return. If the answer is nothing, fix it before the next contract or renewal, because that is when the clock starts.