Rolling contracts in Australia and your unfair contract terms obligations

Rolling contracts power a large share of Australian small business revenue: IT support retainers, software subscriptions, maintenance plans, consumables supply and equipment hire all rely on the same mechanism. The agreement automatically continues for further periods, often month to month or year to year, until one side gives notice. That structure is legal in Australia, but it now carries a compliance burden it did not have a few years ago. Since 9 November 2022, proposing, applying or relying on an unfair term in a standard form consumer or small business contract is a contravention of the Australian Consumer Law (Cth) (the ACL) with pecuniary penalties attached, and since 9 November 2023 the regime covers many more small businesses than it used to.

The obligation is straightforward to state and easy to get wrong: if you run rolling contracts on standard terms with consumers or small businesses, every renewal, notice, price, fee and exit term must be fair and transparent, and your billing and support systems must behave the way the contract promises. This guide sets out who the obligation applies to, the specific duties it creates for auto-renewal, pricing, cancellation fees and direct debits, what non-compliance costs, and how to check your own contract this week.

Who the unfair contract terms obligation applies to

The regime attaches to contracts, not to businesses. Your own size does not matter. What matters is who you contract with and whether the agreement is standard form. Under s 23 of the ACL, the rules apply to:

Consumer contracts: contracts for goods, services or an interest in land supplied to an individual whose acquisition is wholly or predominantly for personal, domestic or household use.
Small business contracts: contracts where at least one party makes the contract in the course of carrying on a business and, at the time the contract is made, employs fewer than 100 people or had turnover below $10 million in its last income year. Part-time staff count pro rata and casuals count only if employed on a regular and systematic basis.
Standard form contracts: a contract alleged to be standard form is presumed to be so unless proved otherwise. Courts look at whether one party had all or most of the bargaining power, whether the terms were prepared before any discussion, and whether the other party could only accept or reject them. Most templates and online sign-ups fall within the presumption, including subscription terms accepted by clicking "agree".

The scope has widened in two steps. The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) introduced penalties for unfair terms from 9 November 2022, and from 9 November 2023 the small business definition expanded to fewer than 100 employees or turnover under $10 million, with no cap on the upfront price of the contract. The ACCC spent 2023 urging businesses to remove unfair terms before the expanded regime took effect. If you have not reviewed your rolling contract terms since then, they are already operating under the new rules.

The core duty: keep renewal, pricing and exit terms fair

A term is unfair when all three elements in s 24 of the ACL are present: it would cause a significant imbalance in the parties' rights and obligations, it is not reasonably necessary to protect the legitimate interests of the party advantaged by it, and it would cause detriment, financial or otherwise, if applied or relied on. The second element carries a presumption against you: a term is presumed not to be reasonably necessary unless you prove otherwise. A court must also consider how transparent the term is, meaning plain language, legible, clearly presented and readily available, and the contract as a whole.

The examples in s 25 of the ACL read like a checklist of rolling contract traps. Terms that may be unfair include those permitting one party but not the other to terminate, terms that penalise one party for breach or termination, unilateral variation of terms, unilateral renewal or non-renewal, variation of the upfront price without a right for the other party to terminate, and unilateral changes to the characteristics of the services supplied.

The leading enforcement example is waste management. In ACCC v JJ Richards & Sons Pty Ltd [2017] FCA 1224, the Federal Court declared by consent that eight terms in the company's standard form small business contracts were unfair and void, including the automatic renewal clause, the price variation clause and the termination clause, across roughly 26,000 contracts. The auto-renewal clause bound customers to further terms of equal length, often one to five years, unless they gave written notice within 30 days before the end of the term, and nothing required JJ Richards to remind them a renewal was coming. The Court accepted that this created a significant imbalance: small businesses could easily miss the window and stay locked in for years, while JJ Richards knew exactly when each renewal fell due. No penalty was ordered because the case predated the penalty regime, but the terms were declared void and the company was restrained from relying on them.

The duty to make renewal and exit terms transparent in practice

Transparency is a legal test under s 24, not just a drafting preference. For rolling contracts that means three operational duties:

State the mechanics plainly: set out the initial term, the renewal period, the notice period and the method for giving notice in one short clause, and repeat it near the top of the contract and again at checkout or signature.
Send reminders: configure your billing system to email customers before the renewal date, not after it. For annual terms, 30 days before renewal is the practical benchmark. The JJ Richards problem was not the length of its notice window on its own; it was the absence of any reminder that a multi-year renewal was about to occur.
Right-size notice periods and make exit easy: 14 to 30 days is common for monthly terms. A cancellation path that takes one email or one click, with no phone call required, reduces both disputes and chargebacks.

A useful test is to read your renewal clause as a customer would: if the window to act is easy to miss and there is no reminder, that clause is a candidate for challenge regardless of what the rest of the contract says.

The duty to make price changes objective, notified and escapable

Price rises are a normal part of running a service business, but the power to increase prices is one of the most heavily scrutinised clauses in rolling contracts. The s 25 examples specifically flag a term that lets one party vary the upfront price without giving the other a right to terminate. To keep your pricing power defensible:

Anchor increases to an objective formula: CPI indexation or stated input costs, applied at a defined time, is far safer than a clause allowing increases "for any reason" or at the supplier's discretion.
Give notice: state how much notice a customer will get before an increase takes effect, and make sure your billing system actually sends it.
Offer an exit on material change: where a change goes to the core of the deal, such as a significant price increase or a cut to features, the customer should have a right to cancel before it takes effect.

The duty to keep cancellation fees a genuine pre-estimate of loss

An early termination fee is enforceable only if it reflects a genuine pre-estimate of the loss you actually suffer when a customer exits early, rather than a figure designed to punish the exit. A payment that is extravagant or unconscionable compared with that loss can be struck down as a penalty and becomes unenforceable. The High Court confirmed the modern version of that test in Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28, upholding late payment fees because they were a genuine pre-estimate of the bank's loss and not punitive. The practical rule for rolling contracts is to be able to justify the number: unrecouped setup or discount costs, a pro-rated portion of an annual fee, or reasonable administration. A round figure chosen to discourage customers from leaving is the exposure.

The duty to preserve the consumer guarantees

If your customer is a consumer, the consumer guarantees in the ACL cannot be excluded, restricted or modified by contract. Under s 64 of the ACL, any term that purports to do so is void. This matters most in your liability clause. You can cap liability for indirect or consequential loss, and you can set a monetary cap on other claims, such as the fees paid in the previous 12 months, but the clause must not purport to override the guarantees or limit liability for failing to comply with them. A lawyer can confirm whether the guarantees apply to your particular customer base, which can extend beyond individual consumers to some business purchases.

The duty to make billing and direct debits cancellable

Billing terms interact with the renewal and exit duties. Set out the billing cycle, due dates and any late fee in the contract, and make sure the invoicing system matches them. If you charge by recurring direct debit, the customer's authorisation is the foundation: a customer can generally cancel a direct debit authority with their bank, and your billing system should process a cancellation promptly rather than continuing to debit. The ePayments Code, a voluntary code developed by ASIC that most banks and financial institutions subscribe to, sets expectations that recurring debits are properly authorised and can be cancelled or disputed by the customer. Although the Code binds the financial institution rather than your business, your arrangements should work with it. If a customer stops the direct debit, keep invoicing and follow your stated suspension process after fair notice, rather than debiting an account without authority.

What happens if a rolling contract term is unfair

The consequences of running an unfair term are more serious than they were before 2022:

The term is void: an unfair term has no effect, and the contract continues to bind both parties if it can operate without the term. You do not get to rescind the whole agreement and walk away.
Pecuniary penalties: since 9 November 2022, the ACCC can seek penalties for proposing an unfair term or for applying, relying on or purporting to rely on one, under s 23(2A) and (2C) of the ACL. Each unfair term proposed is a separate contravention. Under s 224 of the ACL, the maximum penalty for a body corporate is the greater of $100 million, three times the value of the benefit obtained, or 30% of adjusted turnover, and up to $2.5 million for an individual.
Regulator attention: the ACCC actively reviews standard form contracts across ongoing-service industries. Its actions include waste management contracts in JJ Richards and serviced office arrangements in ACCC v Servcorp Ltd [2018] FCA 1044, and it has welcomed the new penalty powers as a tool to deter unfair terms. Enforcement also brings corrective communications, legal costs and reputational damage that a small business rarely absorbs quietly.

A compliance checklist for rolling contracts

Run through each item against your current standard form contract:

Scope check: identify which of your contracts are standard form with consumers or small businesses under the current thresholds of fewer than 100 employees or turnover under $10 million.
Renewal clause: read it as a customer would. Is the notice window realistic, and does anything remind the customer it is approaching?
Reminders: confirm your billing system sends pre-renewal notices, ideally 30 days before annual renewals.
Price changes: anchor increases to CPI or stated inputs, give notice, and offer a right to cancel on material changes.
Cancellation fees: test each fee against the genuine pre-estimate standard and keep the calculation on file.
Liability caps: carve out the consumer guarantees and check the cap against your risk profile.
Exit path: make cancellation a single step and align your support scripts with what the contract promises.
Review cycle: schedule a terms review when you scale, change pricing models, or enter new markets.

When you need a lawyer

A commercial lawyer can review your standard form contract against the s 24 test and the s 25 examples, redraft the renewal, pricing, exit and limitation clauses so they are defensible, and check your fee structures against the penalty doctrine. That review is inexpensive relative to the exposure: each unfair term proposed is a separate contravention carrying penalties up to the figures in s 224. If the ACCC writes to you about your terms, take advice before responding, and if you are drafting a rolling contract from scratch, having the template reviewed before it goes into circulation is far cheaper than remediating 26,000 contracts after the fact.

The renewal gap: the duty most often missed

The duty businesses most often miss is not on the page but in the operations. A contract can state a perfectly reasonable 30-day notice period and still be unfair in practice if customers never learn a renewal is coming, because the imbalance the courts weigh is between what the supplier knows and what the customer is told. That was the substance of JJ Richards, and it is why a terms review alone is not enough. This week, pull your standard form contract, find the renewal, notice, price and fee clauses, and ask three questions: does my billing system remind customers before renewal, can a customer cancel without a phone call, and could I justify every fee and price power to a regulator? If the answer to any of them is no, that clause is your risk, and it is the one to fix first.