Unfair Contract Terms Regime Now In Play
2016 was a big year for the franchising sector, not only was it one year after the implementation of the new Franchising Code, but the unfair contract terms regime also came into effect from 12 November 2016 (“commencement date”).
From the above commencement date this unfair contract terms regime applied to any standard form agreement that was entered into or renewed on or after the above commencement date, or to a term of an existing agreement that was varied on or after that commencement date.
These standard form agreements would generally include franchisors and/or their franchisees’ standard agreements with their suppliers, franchisors and/or their franchisees’ standard agreements with these parties’ customers, as well as the franchise agreement itself.
While there are some exceptions to when this law will not apply to a standard form agreement, these are limited, and most franchise systems will arguably not be able to rely upon the exemptions.
Ultimately the courts decide whether a term in “unfair” as per these new laws, but potentially problematic terms may include:
- terms that allowed one party to unilaterally change key terms without the other’s consent at any time;
- terms that unreasonably limit the liability of the larger business;
- certain damage and/or compensation terms and/or clauses;
- certain restraint of trade terms; and/or
- unreasonable termination clauses.
Concerns have also been raised as to Operations Manuals, especially when a change of to these Operations Manuals has a material impact on the relevant franchise agreement.
The result of this law is that businesses, if they have not already, should immediately in consultation with their lawyers review their standard form agreements (and potentially any connected documents such as their Operations Manuals) to identify clauses that could become problematic under the new law and then either delete, remove and/or amend these problematic terms or risk allegations their agreement/s include unfair terms and the relevant unfair term becoming void, unenforceable, and to have no effect.
Please note this does not purport to be comprehensive advice relevant to your circumstances. Consequently, specific legal advice for each of your circumstances should be obtained first before taking or not taking any action in respect to this area.