Unfair contract terms in Australia: the test and three rewrites

Sample clause

Written for membership terms of Swan River Fitness, a fictional Perth gym, rewritten after a review found three terms likely to be unfair.

Membership Terms. (a) Renewal. The membership runs for 12 months. The Gym will remind the Member in writing at least 30 days before it ends; if the Member does nothing it continues month to month, and the Member may cancel at any time on 30 days' notice without a fee. (b) Price changes. The Gym may change the monthly fee once a year by giving at least 30 days' written notice. A Member who does not accept the new fee may cancel before it applies and pay nothing more. (c) Responsibility. The Gym is responsible for loss or injury caused by its negligence or by equipment it failed to maintain. It is not responsible for loss caused by the Member's failure to follow staff instructions or posted safety rules. (d) This clause does not limit any right the Member has under the Australian Consumer Law.

Sample wording, not legal advice.

Variants

What to negotiate

• Transparency changes the answer

  A term that is expressed in plain language, legible, presented clearly and readily available is less likely to be found unfair. A renewal that runs on silently, hidden on page nine, is a different term from one with a written reminder and a free exit. Rewriting often means adding notice and an exit, not deleting the right.

• Show the legitimate interest

  The business must show why a term is reasonably necessary to protect its legitimate interests. A gym can explain why it needs notice before a member leaves; it will struggle to explain why it can change the price at will with no exit. Write down the interest each one sided term protects before relying on it.

• Penalties now attach to proposing the term

  Since 9 November 2023, putting an unfair term in a standard form contract can attract civil penalties, for a company the greater of $50 million, three times the benefit obtained, or 30% of turnover during the breach period. Reviewing standard terms is cheaper than defending one in court.

The risk of leaving it out

A business that never reviews its standard terms for fairness runs two risks at once. A court can declare a term void, so the business loses the right it thought it had, such as the price change or the liability limit. Since November 2023 it can also face civil penalties for having proposed the term at all, and every customer who signed the same form is affected.

The three part test

Section 24 of the Australian Consumer Law, in Schedule 2 to the Competition and Consumer Act 2010, says a term is unfair if it would cause a significant imbalance in the parties' rights and obligations, is not reasonably necessary to protect the legitimate interests of the party advantaged by it, and would cause detriment to a party if applied or relied on. All three must be met. A court looks at the contract as a whole and at transparency. The business has to prove the legitimate interest; the other two elements fall on the person challenging the term. Law checked on 21 October 2026. This page explains how the law works and is not legal advice.

Three gym clauses tested

Swan River Fitness's old terms rolled the membership over for another 12 months with no reminder, let the gym raise the fee whenever it chose, and excluded liability for injury however caused. The silent rollover traps members into a second year: imbalance and detriment are plain, and no interest needs it. The open price change gives the gym all the flexibility and the member none. The blanket exclusion removes rights the law gives and would cause detriment the first time equipment failed. The sample keeps the gym's real interests, a predictable term and the ability to pass on costs, while adding notice and a free exit.

Which contracts are covered

The regime applies to standard form contracts, ones prepared by one party with little or no chance to negotiate, for consumers and for small businesses. Since November 2023 a small business is one with fewer than 100 employees or turnover under $10 million, and there is no longer a cap on the contract's value. Section 25 lists examples of terms that may be unfair, including one sided rights to vary, renew or terminate, penalties on one party only, and limits on one party's right to sue. Insurance contracts follow their own rules, and financial products are covered under the ASIC Act.

Where the clause sits in a generated document

Service agreements, membership terms and price lists all carry terms of this kind. When asking the AI document generator for standard terms, describe the notice period, the price change rule and the exit right in the prompt, so the clauses come out with them, and keep a short liability clause that does not exclude rights the Australian Consumer Law gives.

Documents that carry this clause

Service agreement template with scope, service levels and an exitA service agreement template has to say what is supplied, how well, for what fee, who is liable for what, and how either side gets out. This one is filled in for Beacon Systems supporting Harlow Freight's IT for an initial 24 months from 1 October 2026 at $8,400 a month plus GST, with 40 hours included and $220 an hour beyond them. Twelve numbered clauses cover the services, a four level severity table, client duties, fees with a CPI adjustment, confidentiality, privacy, IP, a liability cap, termination and a three step dispute ladder under Victorian law.Wholesale price listA bakehouse sells to cafes, so the price that matters is the pack price, not the unit price. This list shows both for seventeen products, then the four things that decide what a cafe actually pays: volume, zone, cut off and terms.

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