Since 9 November 2023, putting an unfair term into a standard form contract is no longer just a reputational risk. It is a breach of the Australian Consumer Law (Cth) (the ACL), and it can attract a pecuniary penalty of up to $100 million for a company or $2.5 million for an individual. Before that date, an unfair term was simply void: a court could declare it unenforceable, but there was no financial penalty attached to having used it. The 2023 reforms changed that, and the maximum penalty has since doubled again.
If your business uses a template agreement, standard terms and conditions, an online sign-up flow, or any contract that customers or suppliers must accept as offered, this obligation applies to you. The rules cover standard form consumer contracts and standard form small business contracts, they are enforced by the ACCC and, for financial products and services, by ASIC, and the consequences of getting it wrong are serious. This guide sets out who the rules cover, what makes a term unfair, the two duties the ACL now imposes, the penalties you face, and the compliance steps that will keep your contracts out of trouble.
Who the unfair contract terms rules cover
Part 2-3 of the ACL, which sits in Schedule 2 of the Competition and Consumer Act 2010 (Cth), applies to two kinds of contracts, provided the contract is a standard form contract:
- Consumer contracts: a contract for the supply of goods or services, or the sale or grant of an interest in land, to an individual for personal, domestic or household use (s 23(3) of the ACL). The size of the deal does not matter.
- Small business contracts: a contract for the supply of goods or services, or an interest in land, where at least one party carries on business and either employs fewer than 100 people or had a turnover under $10 million for its last income year (s 23(4) of the ACL). It does not matter which side of the deal you are on: the protections apply where either party meets the test.
Since the 2023 changes, the old contract value caps of $300,000, or $1 million for contracts running longer than 12 months, no longer apply. The ACCC confirmed the removal of the contract value threshold as part of the reforms, so a contract of any dollar value can be a small business contract for these purposes.
Two details in the headcount and turnover tests catch people out. Casuals only count as employees if they work on a regular and systematic basis, and part-timers count as a fraction of a full-time equivalent (s 23(5) of the ACL). Turnover is measured on a GST-style basis: broadly, the value of all supplies made in the last income year (s 23(6) of the ACL).
The contract must also be a standard form contract. If a party to a proceeding alleges that a contract is standard form, it is presumed to be so unless the other side proves otherwise (s 27(1) of the ACL). Courts must consider factors such as whether one party held all or most of the bargaining power, whether the contract was prepared before any discussion occurred, and whether the other party had an effective opportunity to negotiate (s 27(2) of the ACL). Critically, since the 2023 reforms a contract can still be standard form even if the other party had a chance to negotiate minor changes or to select from a range of options you set (s 27(3) of the ACL). "Take it or leave it" is the classic shape, but it is not the only one.
Finally, timing matters. The new prohibitions and penalties apply to contracts made or renewed on or after 9 November 2023, and to terms added or varied after that date (s 305 of the ACL). A contract signed before 9 November 2023 and never renewed or varied since is not yet exposed to the penalties, although its unfair terms can still be declared void. The moment it renews, or the moment you vary a term, the whole contract steps into the new regime. Auto-renewing contracts are a hidden exposure here: every rollover is a fresh entry point.
The first duty: do not propose unfair terms
The central obligation is in s 23(2A) of the ACL: you contravene the law if you make a standard form consumer or small business contract that contains an unfair term that you proposed. Each unfair term is a separate contravention (s 23(2B) of the ACL), so a contract with three problematic clauses can expose you to three penalty applications.
A term is unfair if three things are all true (s 24(1) of the ACL):
- Significant imbalance: the term would cause a significant imbalance in the parties' rights and obligations under the contract.
- Not reasonably necessary: the term is not reasonably necessary to protect the legitimate interests of the party advantaged by it.
- Detriment: the term would cause detriment, financial or otherwise, to the other party if it were applied or relied on.
The second limb carries a presumption that matters in practice: a term is presumed not to be reasonably necessary unless the party advantaged by it proves otherwise (s 24(4) of the ACL). The burden of justification sits with the business that drafted the term.
Courts must also take into account how transparent the term is, meaning whether it is expressed in reasonably plain language, legible, presented clearly and readily available to the affected party, and they must consider the contract as a whole (s 24(2) and (3) of the ACL). A term buried in fine print, or added without the other party's attention being drawn to it, will struggle to be seen as fair even if the underlying idea is legitimate.
Section 25 of the ACL lists the kinds of terms that may be unfair, including:
- terms allowing one party, but not the other, to avoid or limit performance, to terminate, or to vary the contract;
- terms allowing one party to vary the upfront price or the characteristics of the goods or services without giving the other party a right to exit;
- terms allowing one party to decide whether the contract has been breached or to interpret its meaning;
- terms that limit one party's right to sue, or that penalise one party for breach or termination.
These are examples, not a closed list. The three-limb test in s 24 does the real work, and the ACCC has said the test applies broadly.
There is a second consequence that matters even before penalties are considered: an unfair term in a standard form contract is void (s 23(1) of the ACL). The contract continues to bind the parties if it can operate without the term (s 23(2) of the ACL). In practice this means the term gives you nothing. You cannot enforce a void late-payment fee, a void exclusion clause or a void unilateral variation right, and your counterparty keeps the benefit of the rest of the contract.
The second duty: do not apply or rely on an unfair term
Even if a term has sat in your template for years, the ACL now makes it a separate contravention to apply or rely on an unfair term of a standard form consumer or small business contract (s 23(2C) of the ACL). This catches the everyday conduct that used to go unchallenged: sending a demand for an administration fee your terms purport to authorise, relying on an exclusion clause to reject a claim, terminating a customer under a unilateral right, or applying an automatic price increase.
For businesses that have acquired another company's customer contracts, or that inherited templates from a previous owner, this is the duty that most often bites. The terms were not yours, but the reliance is. Each time you enforce the clause, you create a fresh contravention.
Renewals and variations are the boundary markers. Because the amendments apply to contracts renewed on or after 9 November 2023, and to terms added or varied after that date (s 305 of the ACL), rolling over an old contract is treated as making a new contract. That is why the regulators keep emphasising that the changes bite at renewal: it is the point where an old contract and its old terms step into the penalty regime.
The standard form trap
Most businesses that believe they sit outside the rules are wrong about standard form. The presumption in s 27(1) of the ACL means the burden is on your business to prove the contract was genuinely negotiated. And since the 2023 reforms, the law is explicit that a contract can be standard form even where:
- the other party could negotiate changes that are minor or insubstantial in effect;
- the other party could select a term from a range of options you determined; or
- the other party negotiated a different contract with you on other terms (s 27(3) of the ACL).
Online checkout terms, app agreements, franchise and dealership agreements, lease and hire agreements, and business-to-business supply terms all routinely qualify. The test focuses on whether the substance was effectively presented on a take-it-or-leave-it basis, not on whether you allow a little flexibility at the edges.
What happens if you get it wrong
The penalty exposure
For a body corporate, the maximum pecuniary penalty for a contravention of s 23(2A) or (2C) of the ACL is the greatest of (s 224 of the ACL):
- $100 million, doubled from $50 million by the Treasury Laws Amendment (Doubling Penalties for ACCC Enforcement) Act 2026 (Cth), which commenced on 28 March 2026;
- three times the value of the benefit the company obtained that is reasonably attributable to the contravention, if the court can determine it; or
- 30% of the company's adjusted turnover during the period of the breach, if the court cannot determine that benefit.
For individuals, the maximum penalty is $2.5 million. That includes directors, officers and employees who are knowingly concerned in a contravention (s 224(1) of the ACL). The penalty is assessed per act or omission, and with separate contraventions for each unfair term, a single poorly drafted contract can generate multiple penalty exposures.
Other orders
Beyond penalties, a court can declare a term unfair (s 250 of the ACL), grant injunctions, and make orders to redress loss or damage caused to counterparties and to stop similar terms being used in future contracts (ss 243A and 243B of the ACL). Compensation orders under ss 237 and 238 of the ACL are also available for loss suffered because of a contravention.
The regulators
The ACCC enforces the unfair contract terms provisions for most goods and services, together with state and territory consumer agencies, and ASIC enforces the equivalent protections for financial products and services. The ACCC has been active. In 2022 the Federal Court declared 38 terms in Fujifilm's standard contracts with thousands of small businesses unfair, and home builder Fowler Homes gave a court-enforceable undertaking to change its standard building contract. Ahead of the November 2023 commencement, the ACCC publicly urged every business to review its standard form contracts and remove or amend unfair terms before the penalties took effect.
A practical compliance checklist
Work through these steps before your next rollout of a template:
- Inventory your contracts: Collect every template, including online terms, renewals, and agreements inherited through acquisitions. Identify which are standard form and which counterparties fall within the consumer or small business tests.
- Test each term against s 24: For every term that advantages you, ask whether it creates significant imbalance, whether it is reasonably necessary to protect a legitimate interest, and whether it could cause detriment. Remember that you carry the burden of proving reasonable necessity.
- Check the s 25 example list: Unilateral variation, unilateral termination, unilateral price change without an exit right, unilateral interpretation and limits on the right to sue are the classic problem clauses.
- Add counter-balancing terms: The ACCC's guidance is practical: if you can change the product or the price, the customer should be able to exit without penalty, and if you can terminate, they should have a reciprocal right.
- Make the contract transparent: Plain language, legible text, clear presentation, and key terms drawn to the counterparty's attention at sign-up and at renewal.
- Track renewal dates: Every renewal is a fresh entry into the penalty regime. Diarise them and re-check the template behind each one before it rolls over.
- Get a legal review before rollout: Have a lawyer audit the templates before you use them, not after a regulator comes knocking.
Where a lawyer can help
A commercial lawyer can do the things an internal review usually misses: benchmark your terms against the s 24 test and the s 25 examples, rank the clauses by risk, and redraft the genuinely necessary ones so they are no wider than they need to be. A lawyer can also work out your transitional position, meaning which contracts are already inside the penalty regime and which will step into it at the next renewal, and can respond to an ACCC or ASIC enquiry if one arrives. If you are already facing a penalty application or a demand for an undertaking, that is the point where legal advice stops being optional.
Start with the renewal list
If there is one place the risk concentrates, it is renewals. A contract left untouched since before 9 November 2023 escapes the penalties, but the moment it renews, or the moment anyone varies a term, the whole contract enters the regime and every unfair term in it becomes a potential penalty exposure. For businesses with auto-renewing subscriptions, memberships, leases or supply agreements, that entry point is already passing unnoticed. Pull the list of renewal dates this week, and have the templates behind them reviewed before the next one rolls over. The cost of a review is trivial next to a penalty application measured in the tens of millions.