Before you sign a business contract, check who the parties are, what each must do, how and when you are paid, how the contract can end, who carries the risk, and whether you are giving a personal guarantee.
Once signed, a contract can be hard to get out of.
Read the whole contract, including the standard terms attached to it.
1. The parties
Check the full legal name, and the ABN or ACN, of each party.
If you sign for a company, sign as a director, not in your own name.
Check that the other party can perform the contract.
2. What each party must do
The contract should describe the goods or services in detail.
Check the dates for delivery or completion.
Vague promises are hard to enforce. Set out the standard of work and how it will be accepted.
3. Price and payment
Check the price, whether it includes GST, and when it is payable.
Check whether the price can change, and on what notice.
Check the interest or fees on late payment.
4. Ending the contract
Check how long the contract runs, and whether it renews on its own.
Check how each party can end it, and the notice required.
Check what you must pay if you end it early.
A term that lets only one party end the contract can be unfair in a standard form contract.
5. Risk and liability
Check any clause that limits the other party's liability, or that requires you to indemnify them.
An indemnity can make you responsible for losses well beyond the contract price.
Check the insurance you must hold.
6. Guarantees and security
Directors are often asked to give a personal guarantee for their company.
A guarantee makes you personally liable if the company does not pay.
Some contracts also give the supplier a security interest over your assets, which may be registered on the Personal Property Securities Register.
7. Unfair contract terms
The unfair contract terms law applies to standard form contracts with consumers and with small businesses.
A small business is covered if it has fewer than 100 employees or annual turnover under $10 million.
A term is unfair if it causes a significant imbalance in the parties' rights, is not reasonably necessary to protect the legitimate interests of the party it benefits, and would cause harm if relied on.
Since 9 November 2023, proposing, using or relying on an unfair term in a standard form contract is prohibited, and penalties apply.
Only a court can decide that a term is unfair. If it does, the term is void, and the rest of the contract continues if it can operate without it.
The law does not apply to the upfront price or to the terms that define the main subject matter of the contract.
Where people get caught
Signing the quote and ignoring the terms on the back
The terms and conditions are part of the contract.
Signing in your own name for your company.
You may become personally liable.
Missing an automatic renewal.
Note the date by which you must give notice to end it.
Leaving blanks.
Fill in or cross out every blank before you sign.
Relying on what was said, not what was written.
If a promise matters, put it in the contract.
Common questions
Does a contract have to be in writing?
Not always. Many contracts can be verbal or written. Some, such as contracts for the sale of land, must be in writing.
Can I change a contract before I sign it?
Yes. Negotiate changes before you sign. Both parties should sign or initial each change.
Is a term void just because it is unfair?
Only a court can decide that a term in a standard form contract is unfair. Get advice before you refuse to comply with a term.
Have the contract read before you sign. Call (02) 8062 6300.
This article is general information only. It is not legal advice for your situation.