Compliance & disputes

Unfair contract terms

Unfair contract terms laws under the Australian Consumer Law protect small businesses — including many franchisees — from one-sided terms in standard-form contracts, allowing a court to declare an unfair term void, with civil penalties now applying to businesses that rely on such terms.

What it means

Franchise agreements are usually standard-form contracts drafted by the franchisor and offered on a take-it-or-leave-it basis, which is exactly the setting the unfair-contract-terms regime targets. A term may be unfair if it would cause a significant imbalance in the parties' rights, is not reasonably necessary to protect the franchisor's legitimate interests, and would cause detriment to the franchisee if relied on.

The protections apply to small-business contracts that meet the eligibility thresholds under the Australian Consumer Law, and many franchise agreements qualify. Since the November 2023 strengthening of the regime, it is no longer merely that an unfair term can be declared void — proposing, using or relying on an unfair term in a covered contract can attract significant civil penalties, which has pushed franchisors to review their agreements.

This regime operates alongside the Franchising Code and the good-faith obligation, not instead of them. A clause might be permitted by the Code yet still be challengeable as unfair, and vice versa. Examples of terms often scrutinised include broad unilateral variation rights, one-sided termination powers and disproportionate penalties.

In practice

When your lawyer reviews a franchise agreement, ask them to flag terms that look one-sided — sweeping rights for the franchisor to vary, terminate or impose costs — and whether the unfair-contract-terms laws might apply. This is part of, not a replacement for, checking Code compliance.

If you are already in a franchise and believe a term is being used unfairly, raise it through the Code's dispute-resolution process and take advice on whether the unfair-contract-terms regime is relevant. The strengthened penalties give franchisors a strong incentive to address genuinely unfair terms.

A real example

A franchisee's lawyer reviews a proposed agreement and flags a clause letting the franchisor change fees and obligations unilaterally at any time, with no notice and no franchisee recourse. Because the agreement is a standard-form small-business contract, the lawyer advises the clause may be an unfair contract term, and the franchisee raises it before signing.

Unfair contract terms — FAQs

Do unfair contract terms laws apply to franchise agreements?

Often yes. Franchise agreements are typically standard-form contracts, and many meet the small-business thresholds under the Australian Consumer Law, bringing them within the unfair-contract-terms regime.

What makes a term 'unfair'?

Broadly, a term that causes a significant imbalance in the parties' rights, is not reasonably necessary to protect the franchisor's legitimate interests, and would cause detriment to the franchisee if relied on.

What happens if a term is unfair?

A court can declare it void so it cannot be enforced. Since November 2023, proposing or relying on an unfair term in a covered contract can also attract significant civil penalties.

Is this the same as the Franchising Code?

No. The unfair-contract-terms regime sits under the Australian Consumer Law and operates alongside the Franchising Code. A term can be Code-compliant yet still challengeable as unfair.

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