A contract is a legally-binding agreement between two or more parties. You enter standard form contracts all the time - typically for mobile phones, gym memberships, and utilities.
This page includes general information on contracts as well as:
- what you can expect
- things to look out for
- advice on ending a contract
- types of contracts
- what to do if things go wrong
- advice to be a savvy consumer
Contracts can be made in writing or verbally, and entered into in a number of ways including:
- signing a document
- agreeing over the phone
- paying a deposit
- clicking an ‘I agree’ button on a web page.
"It’s a good idea to have a written contract as it minimises misunderstandings and results in fewer disputes. With a verbal contract, it may be difficult to prove exactly what was agreed to, or even if a contract existed."
A contract has three elements:
- Offer: This is made when you decide to buy something and offer to pay a price. You may also offer to give or do something in return.
- Acceptance: This is done when the seller agrees to supply the goods or services. The acceptance may be in words or an action (for example, if you signed a written agreement accepting the terms and conditions).
- Consideration: This is the value (usually money) that is given in return for the goods or services to be supplied or acquired. It can also be an agreement to pay at a later date after certain events occur or procedures are followed.
Australian Consumer Law applies to ‘standard form’ consumer contracts for the supply of goods and services, or for the sale or grant of an interest in land, to an individual for personal, domestic or household use. Most insurance contracts are not covered.
Generally, a ‘standard form’ contract:
- is prepared by the business
- contains a set of generic terms and conditions
- is not negotiated between parties
- is presented on a 'take it or leave it' basis.
What to expect when you enter into a contract
"Despite what is written in a contract, there may be terms and conditions outside the agreement that the law imposes. For example, while a contract may include a clause saying 'no refunds', the law gives people a non-excludable right to a refund under certain circumstances."
Contracts are legally binding
You should be aware that payment of a deposit and/or signing any documents might mean you have entered into a contract and are bound by the terms and conditions of that contract.
Once you agree to a contract, you are committed to it, so it is important you are comfortable with the contract terms.
If you want to pull out of the contract before it’s finished, you may end up paying a penalty (sometimes the full amount of the contract) or you could be taken to court to compensate loss.
Some contracts may allow you to 'opt-out' or terminate your contract early, with or without a penalty. If you want an opt-out clause in the contract, you should get independent legal advice to make sure you are properly covered.
You may be penalised if you breach a contract
Consumers who breach a contract might have to compensate a business for any loss they incur.
In many instances, businesses are entitled to an amount to cover ‘reasonable costs.’ What is reasonable can vary with every contract.
The law requires that both consumers and businesses take reasonable steps to minimise any losses incurred as a result of a breach of agreement.
See an example
A customer books a hotel room for the weekend only to decide on the day of check-in that they no longer want the room. The hotel’s cancellation policy requires 48-hours’ notice or a cancellation fee is charged. This fee allows the hotel to minimise its losses if the room is not rebooked. The policy also prompts the customer at the time of booking to think about the contract they are entering into.
If your property is damaged during the contract
Businesses must ensure that contracts are performed with due care and skill.
In the event a consumer’s property is lost or damaged (particularly through business negligence), the consumer may seek compensation to cover this loss.
Delays in delivery and non-supply
Before buying an item, make sure you know the expected delivery time.
The business must supply the goods and services in the time specified in the contract, or if a time has not been specified, within a reasonable time after accepting payment. What is reasonable can vary with each contract.
Things to look out for
Misleading or deceptive conduct
Australian Consumer Law protects consumers from misleading or deceptive conduct.
Business conduct is likely to break the law if it creates a misleading overall impression among the intended audience about the price, value or quality of consumer goods or services.
Whether a business intended to mislead or deceive is irrelevant, what matters is how their statements and actions - the 'business conduct' – could affect the thoughts and beliefs of a consumer.
Learn more about misleading or deceptive conduct.
Unfair contract terms
Contracts should not contain unfair terms (legal obligations). Generally, a contract term is ‘unfair’ if these three conditions are met:
- The contract is one-sided and greatly favours the business over the consumer.
- There is no satisfactory commercial reason why the business needs such a term.
- The consumer will suffer financial loss, inconvenience or other disadvantage if the term is enforced.
Australian Consumer Law protects consumers against unfair terms in standard form consumer contracts. The law applies to new contracts entered into on or after 1 July 2010 and terms of existing contracts renewed or varied on or after 1 July 2010.
See examples of potential unfair contract terms
- Terms that allow the business to make unilateral changes to important aspects of the contract, such as increasing charges or varying the type of product to be supplied, with no right for the consumer to cancel the contract without penalty.
- Terms that avoid, limit, or restrict the liability of a supplier, its employees or agents for a breach of the contract.
- Terms that require consumers who breach the contract or end it early to pay an excessive amount in compensation or cancellation charges.
Note: Contracts can still include these terms, as they are not banned, but if used in certain circumstances, they can be unfair.
Some frequently ask questions:
Who decides if a contract term is unfair?
Only a court or the NSW Civil and Administrative Tribunal (Tribunal) can decide if a contract term is unfair.
The court or Tribunal must consider:
- whether the term meets the three conditions of unfairness (outlined above)
- how the term was expressed in the contract (eg was it hidden in fine print or written in complex legal jargon?)
- the contract as a whole (a term that seems unfair may be reasonable if it is balanced by other terms offering benefits such as lower prices).
What happens to a contract that contains an unfair term?
If a court or Tribunal finds that a contract term is unfair, it is void. The term is treated as if it never existed and cannot be enforced or relied on. However, if the unfair term is removed, the contract still stands.
Contract terms excluded from Australian Consumer Law
Australian Consumer Law does not apply to contract terms that:
- describe the goods, services or land that you’ve agreed to buy
- set the upfront price payable under the contract, provided the price is disclosed before the contract is entered into
- are required or permitted by law as a matter of public policy.
Ending a contract
Once a contract has been signed, neither party can change their mind. Everyone involved is bound by the terms and conditions of that contract.
If either party wants to pull out of the contract before it’s finished, they may end up paying a penalty (sometimes the full amount of the contract) or the other party may take them to court to recover their losses.
Some contracts allow a party to 'opt out' or terminate the contract early, with or without a penalty. If either party wants an opt-out clause in the contract, they should get independent legal advice to make sure they are properly covered.
There are limited circumstances when consumers may end an agreement without penalty. These include:
- misrepresentation of the goods, services, terms or conditions
- a cooling-off period provided under Australian Consumer Law.
Types of contracts
Contracts with minors
The Minors (Property and Contracts) Act 1970 binds minors (children under the age of 18) to contracts, leases and other transactions, where it can be shown the contract is for their benefit. It does not take into account parent or guardian wishes as to whether or not the contract should have been formed.
Note: People doing business with minors will often require someone (over the age of 18) to guarantee that the minor fulfils their part of the contract.
A non-disclosure agreement (also known as a confidentiality agreement) is a legal contract between two or more parties that prevents the disclosure of certain information to an outside party.
A non-disclosure agreement may be used to settle a dispute between a consumer and a person or a business, so that both sides can achieve a result without having to go to court or tribunal.
Every non-disclosure agreement is different. The contract terms can vary depending on the parties involved, the type of agreement, payment information and how the agreement can be disputed or ended.
Contract terms may relate to:
- the information that can be disclosed
- how information can be disclosed (eg in an oral conversation or email)
- the people information can be disclosed to (eg accountant or solicitor)
- the duration of the agreement.
"Consumers who raise a complaint about a product or service may be asked by the trader to sign a non-disclosure agreement, in order to receive a replacement, refund or compensation, and settle the dispute. It is not compulsory for the consumer to sign a non-disclosure agreement."
From 28 February 2019, a non-disclosure agreement cannot limit a consumer’s ability to lodge a complaint with NSW Fair Trading. Any such terms in a non-disclosure agreement will be void and not legally enforceable.
Before or at the time of asking a consumer to enter into a non-disclosure agreement, the law requires that the trader inform the consumer of their ongoing right to lodge a complaint with Fair Trading.
If a trader fails to inform a consumer of their ongoing right to lodge a complaint with Fair Trading, the law provides for maximum penalties of $22,000 for offences by corporations or $4,400 in any other case.
Have a problem?
Be a savvy consumer
Before signing a contract
Before signing a contract, everyone should:
- take time to consider the contract carefully
- be sure they really want and know what they are signing for
- read every word - including the fine print
- seek legal advice if they don't understand the contract
- not be pressured into signing anything
- if necessary, take the contract home overnight and read it through
- never sign a contract that contains blank spaces
- make sure that all parties initial any changes that are made to the contract they sign
- always get a copy of any contract they sign.
Can’t find what you’re looking for? Send a general enquiry.
Who enforces Australian Consumer Law?
The following agencies enforce provisions relating to consumer goods and services:
- Australian Competition and Consumer Commission (ACCC)
- NSW Fair Trading, and
- other State and Territory consumer protection agencies.
The Australian Securities and Investments Commission (ASIC) is responsible for financial products and services.