Recent changes to the unfair contracts regime may have a significant impact on how you run your cafe. The reason being that small businesses now enjoy the same benefits that consumers received regarding unfair contracts terms. Below, we provide an overview of what constitutes an unfair contract term and some typical examples of unfair contracts that cafe owners might face.

What are Unfair Contract Terms?

The Australian Consumer Law (ACL) defines unfair contract terms as terms in a “standard form contract” that:

  • Significantly imbalance parties’ rights and obligations under the contract;
  • Are not reasonably necessary to protect the interests of the party who would be advantaged by the term; and
  • Cause detriment to a party if the parties relied on it.

Each of the above three conditions must be satisfied for the ACL to consider a contract term to be unfair.

How Do Unfair Contract Terms Affect My Cafe?

Some typical examples of contracts a cafe might enter into include, for instance:

  • Contracts for the supply of stock (e.g. food, coffee, equipment);
  • Commercial or retail leases; and
  • Contracts for telephone, fax and internet connection.

Usually, these contracts are standard form contracts. Accordingly, this means the changes to the unfair contract laws could apply to each of these agreements. Each of the contracts also has different potential terms that the ACL could consider unfair. For example, it is unlikely that a contract for the supply of coffee would have similar terms as that of a lease.

Contracts for Supply

Arguably, one of the most significant contracts for a cafe owner are contracts for the supply of goods. They set out the terms between you and your suppliers. Of the many terms, termination clauses have the potential to be unfair.

Termination

Termination clauses such as those found in your contract for coffee could potentially be unfair. With many big coffee suppliers, they may seek to undermine your ability to terminate the contract and prevent you from sourcing your coffee from another provider.

For example, termination clauses may be considered unfair which the coffee supplier has drafted in a way which:

  • Prevents termination in any circumstances; or
  • Prevents termination unless you obtain the approval of the supplier

In particular, the term may be unfair where termination is not possible even when the supplier has defaulted on their obligations. This type of default may be when they repeatedly fail to deliver the coffee order on time.

Lease Agreements

Lease agreements are almost always, particularly in a shopping centre, drafted to protect the rights of the landlord. The following clauses are therefore quite common and may be considered unfair.

Changing Shopping Centre Rules

Most leases for a shopping centre will contain a provision that allows the shopping centre to change the rules under which your cafe can operate. For example, this might be changing your opening hours or your rubbish disposal obligations.

Where the landlord has drafted a provision in the lease so broadly as to allow them to make any changes, the ACL will likely consider it to be beyond what is required to legitimately protect the shopping centre’s interests.

Recovery of Costs and Damages

Leases also contain provisions that allow the landlord to recover costs from a tenant as a result of the tenant’s breach. They may also contain a clause that requires the tenant to indemnify the landlord for any damages.

Such a provision could be an unfair term if the landlord drafts the clause too widely to allow them to recover any costs or damages, even where the landlord contributed to the damages.

Telecommunications Contracts

Most cafes will require some form of telephone, fax and internet connection. These telecommunications contracts will be a form of a standard form contract and you should watch out for the following potentially unfair terms.

Unilateral Variation

It is not unusual to find a unilateral variation clause in a telecommunications contract. These provisions provide the telecommunications provider with the ability to change aspects of the contract. For example, they may impose retrospective charges or allow the provider to terminate or suspend services. Factors which might suggest unfairness include:

  • Insufficient notice periods; or
  • Termination fees if you wish to cancel the contract following a variation

Early Termination Charges

Another common clause found in telecommunication contracts which have the potential to be unfair are early termination clauses. Providers have a number of different ways they calculate early termination charges. However, if they do not reasonably reflect the actual loss the provider suffers as a result of the termination, the ACL will likely consider the clause unfair.

Key Takeaways

If you are looking to enter into or are renewing any of these contracts, you should review them carefully so that they do not contain any of these types of clauses. If they do, then you can seek the removal of the clause from the contract.

Alternatively, if you are currently already in a contract with a potentially unfair contract term, then we may be able to assist you to renegotiate some of these terms to be more favourable. These new changes usher in significantly greater rights for small businesses, so ensure you take advantage of them. Questions? Get in touch with our consumer lawyers on 1300 544 755.

Masao Watanabe

Next Steps

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