Unfair Contract Terms
Learn what makes contract terms unfair under Australian law, how courts assess fairness, cooling-off rights, and when terms become void
Written by: Mark Lazarus, Commercial Lawyer, Director of Lazarus Legal
Last updated: 01 January 2026
Legal Disclaimer: The information on this page is general in nature and is not intended to constitute legal advice. It does not take into account your personal circumstances. Laws and legal processes can change, and their application varies between cases. You should seek independent legal advice before acting on any information on this page.
What Are Unfair Contract Terms?
Unfair contract terms are contract clauses that create an unjust imbalance between parties in a way that Australian law considers unacceptable. Under the Australian Consumer Law, unfair contract terms can be declared void by a court, meaning they cannot be enforced against the disadvantaged party.
The law treats “unfair” as a specific legal concept rather than a subjective judgment. These protections primarily apply to standard form contracts involving consumers and small businesses, where one party typically has limited or no ability to negotiate terms.
How To Spot Unfair Contract Terms
A contract term may be considered unfair if it meets three core indicators:
- The term creates a significant imbalance in the parties' rights and obligations under the contract
- The term is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term
- The term would cause detriment to a party if it were relied upon or enforced
Whether a term is unfair depends on the context and the contract as a whole. Courts do not assess individual terms in complete isolation. They consider how terms interact with each other, the transparency of the term, and whether other provisions balance out potential unfairness. A term that appears problematic on its own might be acceptable when viewed alongside offsetting protections elsewhere in the agreement.
When Do Unfair Contract Terms Commonly Appear?
Unfair contract terms typically appear in standard form contracts where one party prepares the agreement and the other must accept it on a "take it or leave it" basis. These situations most commonly affect consumers and small businesses dealing with larger organisations that use template agreements across their customer base.
- One-sided termination clauses that allow only one party to end the contract without cause
- Unilateral variation clauses that let one party change prices, fees, or terms without notice or consent
- Automatic renewal provisions without clear advance notice to the other party
- Broad limitation or exclusion of liability clauses that remove accountability for poor performance
- Disproportionate penalty clauses for minor breaches or early termination
- Terms requiring one party to indemnify the other for risks beyond their control
- Clauses that require disputes to be resolved only through expensive arbitration
- Terms that limit one party's right to take legal action or make complaints
How Australian Courts Assess Unfair Contract Terms
Australian courts assess whether a contract term is unfair by examining the agreement in context rather than evaluating individual clauses in isolation. The court considers the contract as a whole to determine whether unfair terms exist and whether the remainder of the contract can operate without them.
Key considerations in this assessment include:
- The relative bargaining power of the parties when the contract was formed
- Whether the term was clearly disclosed, prominently displayed, and expressed in reasonably plain language
- Whether other terms in the contract offset or balance the potentially unfair term
- The extent to which the term departs from industry norms or standard practice
- Whether the disadvantaged party had a genuine opportunity to negotiate or shop elsewhere
How Contract Terms Are Interpreted In Context
Courts assess fairness by examining how terms operate in practice, not just how they read in isolation. The following scenarios illustrate how context affects whether terms are considered unfair:
A gym membership allows the business to increase fees at any time without notice. This appears unfair on its own, but the contract also allows members to cancel immediately without penalty if fees increase. The offsetting term may prevent a finding of unfairness.
An online subscription service can change its terms and conditions at any time. The clause is buried in paragraph 47 of the terms, uses complex legal language, and provides no notification requirement. Courts would likely consider this unfair due to lack of transparency and prominence.
A mobile phone plan includes automatic renewal with a 24-month lock-in period. The term appears prominently on page 1 in plain language, with a clear opt-out process explained at sign-up. Transparency may prevent this from being considered unfair despite the long commitment period.
What Are Cooling-Off Periods?
A cooling-off period is a statutory right that allows consumers to reconsider and cancel certain contracts within a specified timeframe after entering them. Under Australian law, automatic cooling-off rights apply to specific situations, primarily unsolicited consumer agreements such as telemarketing and door-to-door sales, where consumers have 10 business days to cancel.
Cooling-off periods also exist for particular transactions under state and territory legislation, including residential property contracts in NSW (5 business days), building contracts in Queensland, and certain other regulated agreements.
Cooling-Off Periods And Unfair Contract Terms
Cooling-off rights operate separately from unfair contract term protections, though they are sometimes confused.
Cooling-Off Periods
- Allow you to reconsider and exit a contract within a set timeframe
- Give you time to change your mind after signing
- Apply only to specific transactions (door-to-door sales, telemarketing, property purchases)
- Are about whether you want to proceed with the contract at all
Unfair Contract Term Laws
- Regulate whether the terms inside a contract are fair and balanced
- Assess whether terms create unjust imbalances between parties
- Apply to standard form contracts with consumers and small businesses
- Are about whether individual terms within the contract are enforceable
The absence of a cooling-off period does not make a contract unfair. A gym membership purchased in-store has no cooling-off right, but the contract terms can still be assessed for fairness. Conversely, a property contract with a 5-day cooling-off period can still contain unfair terms that a court may declare void. These protections operate independently and serve different purposes in Australian consumer law.
Are Unfair Contract Terms Automatically Unenforceable?
When a court or tribunal determines that a contract term is unfair, that term becomes void and unenforceable. According to the ACCC, this means the term does not bind the parties and cannot be relied upon.
The remainder of the contract continues to operate and bind the parties, provided it can function without the unfair term. If removing the unfair term would make the rest of the contract unworkable or fundamentally change its nature, the entire agreement may fail.
Since November 2023, proposing, using, or relying on unfair contract terms in standard form contracts has been prohibited, with significant penalties now applying. Courts can impose substantial fines on businesses that include such terms, and regulators can seek injunctions preventing their future use.
However, only courts can make final determinations about whether specific terms are unfair. Until a court makes this declaration, the question remains open to legal interpretation and argument.
When To Get Legal Help With Unfair Contract Terms
Legal clarification may be helpful before signing standard form contracts, particularly for high-value transactions or long-term commitments. You may also benefit from advice when you’re unsure whether a term can be challenged, when disputes arise over enforcement, or when the other party seeks to rely on a term that appears to create significant unfairness or imbalance.
Legal advice cannot guarantee that a court will find a term unfair, but it can help you understand how the law applies to your specific circumstances and what options may be available. The ACCC provides general guidance on unfair contract terms but cannot make determinations about individual contracts or provide legal advice on specific situations.
Summary
- Unfair contract terms are contract clauses that create a significant and unjustifiable imbalance in parties’ rights and obligations under Australian law
- The legal test for unfairness involves three core indicators: significant imbalance, lack of reasonable necessity, and potential detriment to one party
- Courts assess contract terms in context, considering the entire agreement, relative bargaining power, transparency, and whether offsetting terms exist
- Unfair contract terms commonly appear in standard form contracts offered on a “take it or leave it” basis to consumers and small businesses
- Cooling-off periods are separate statutory rights that allow consumers to reconsider certain contracts, but they do not determine whether contract terms are fair
- When a court declares a term unfair, it becomes void and unenforceable, though the rest of the contract typically continues to operate
- Legal advice may be appropriate before signing standard form contracts, when challenging potentially unfair terms, or when disputes arise over contract enforcement
About Mark Lazarus – Director, Lazarus Legal
Admitted in both Australia and the UK, Mark brings more than two decades of global legal experience to Lazarus Legal. Having worked as a barrister, in private practice, and as in-house counsel for a major international consumer brand he combines courtroom-honed advocacy with commercial insight. Specialising in commercial law, intellectual property and dispute resolution, Mark advises startups, creative businesses, and established enterprises on transactions, trademarks, contract drafting, and litigation strategy. His cross-jurisdictional background and history as a former in-house legal director give clients confidence that their legal issues will be managed with both strategic foresight and commercial realism.