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Small businesses make up 97% of all businesses in New Zealand. If you own or run a small business, you will likely encounter contracts. Contracts allow agreements to be legally enforceable. This means either party can seek remedies in court if the other party breaches a term in the agreement. Indeed, contracts are negotiated between the parties and are then signed off. However, sometimes businesses will try to include terms in a contract that the court could deem unfair. This article will explain how to avoid unfair contract terms in your small business

Unfair Contract Terms

The court considers small business contracts unfair if they have unfair contract terms. In New Zealand, unfair contract terms are defined by the Commerce Commission and upheld by the courts. For the court to consider a term unfair, it must meet three requirements. The term must:

  • cause a significant imbalance between the two parties, meaning one party is overly advantaged to the detriment of the other party due to the term;
  • not be necessary for the legitimate interests of the party, meaning if the party can get the same result without the term, it may be considered unfair; and
  • cause detriment, meaning one party suffers harm or loss due to the term. 

The court cannot consider some terms to be unfair. These are terms that relate to the subject matter of the contract or the upfront price of it. In addition, terms required by law can also not be considered unfair. 

It is also important to note that unfair contract terms only apply to standard form consumer contracts. A consumer contract is a contract that involves a supplier of goods or services and a consumer. A consumer contract is the most common form of contract in New Zealand. 

1. Get a Lawyer to Review the Contract

The best way to avoid signing an unfair contract is to get a lawyer to read over it. A lawyer will be able to pinpoint what terms are unfair. Making sure you identify unfair contract terms will mean you are not disadvantaged by it. After your lawyer identifies an unfair contract term, you can either get your contracting party to remove or vary the term. You could also walk away from the contract entirely if you feel your contracting party is not acting in good faith. 

2. Talk With Your Contracting Party

When negotiating a contract, the contracting party must disclose all the necessary information. This is to make sure that the other party is not treating you unfairly. Therefore, if you ask your contracting party for any relevant information, they are likely to give it to you, and they will want to do everything in their power to make sure you agree to the contract. However, if you do not ask for any necessary information, your contracting party may not disclose it. This could include information relating to financials, market reports or legal proceedings. 

3. Know Your Circumstances

Determining unfair contract terms involves a subjective assessment of the contracting parties. This means looking at the bargaining positions of each party. If you are more in need of a contract than the contracting party, you are considered to be in a lower bargaining position. This means any term included in the contract by the other party is more likely to be unfair, primarily if it benefits the other party to your detriment. 

If you feel that your circumstances mean that your contract is unfair, you should discuss this with your contracting party. 

Key Takeaways

All types of businesses use contracts, but they are especially popular with small businesses. When negotiating a contract for your small business, you may come across unfair contract terms. This means the contract terms are not enforceable and must meet three requirements. If the term is not considered fair and the term is not one exception, then the contract can be thrown out by a court. However, it is important to remember that only the Commerce Commission can take an unfair contract term case to court so that most unfair contract terms will go unnoticed. To avoid unfair terms, discuss your contract with a lawyer and your contracting party. You can also think about the position you are in to determine if a contractual term is unfair.

If you need any legal assistance with unfair contract terms, contact LegalVision’s contract lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Will the entire contract be unenforceable if a contract is deemed unfair?

No, this will only happen if there are enough unfair contract terms to make the contract redundant.

Can I go to court if I find an unfair contract term?

No, only the Commerce Commission can make claims for unfair contract terms. However, if you encounter an unfair contract term, you can implore your contracting party to change this.

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