How Do I Write Legally Compliant Terms and Conditions for My Business?
Summary
Terms and conditions bind your customers only where they actively accept them, so a tick box at checkout holds up where a footer link often does not.
The Australian Consumer Law guarantees acceptable quality, fitness for purpose and due care and skill, and any term excluding those guarantees is void.
The unfair contract terms regime covers standard form contracts with consumers and with small businesses, and penalties against a corporation reach $50 million.
This article explains how Australian business leaders write terms and conditions that a court will enforce.
Tips for Businesses
Present your terms before checkout, and require customers to scroll through before ticking accept. Keep a record of each version and the date each customer agreed. State how you will notify customers of changes, and let customers terminate instead of accepting. Check your terms do not contradict your privacy policy or your advertising. Review your terms annually.
Terms and conditions form a legally binding contract between an Australian business and its customers, covering payment, liability and dispute resolution. Australian courts enforce terms only where the customer actively accepts them, so a tick box at checkout works where a link buried in a website footer often does not. The Australian Consumer Law also sets a floor no contract can lower. Consumer guarantees on acceptable quality, fitness for purpose and due care and skill apply regardless of what your terms say, and any term excluding them is void. The unfair contract terms regime goes further, and the ACCC can seek penalties reaching $50 million against a corporation that relies on an unfair term.
This article explains what makes terms and conditions enforceable in Australia, how the Australian Consumer Law limits what you can include, the mistakes that make terms unenforceable, and how the unfair contract terms regime applies to your small business customers.
What Are Terms and Conditions?
Terms and conditions are a legally binding contract between your business and your customers. They outline the rights and responsibilities of both parties when customers purchase your products or use your services. These terms govern everything from payment obligations to liability limitations and dispute resolution processes.
Your terms and conditions should be clear, fair, accessible and enforceable. Customers must be able to find and understand them before making a purchase or using your service.
Why Do You Need Terms and Conditions?
Terms and conditions protect your business in several ways. For example, they:
limit your liability for certain losses,
set out refund and return policies, and
establish how you handle disputes.
Without proper terms, you may face difficulties enforcing important elements of your business’ relationship with customers, such as payment or intellectual property.
The Australian Consumer Law (ACL) provides consumers with certain guaranteed rights that you and your business cannot contract out of. However, terms and conditions allow you to define other aspects of your business relationship within legal boundaries.
Key Elements That Make Terms and Conditions Legally Enforceable
Simply having terms and conditions is not enough. Courts will only enforce terms that meet specific legal requirements, such as:
1. Clear Acceptance by Customers
Customers must actively agree to your terms before they become binding. For online businesses, use a clickwrap agreement where customers tick a box confirming they accept your terms before completing a transaction. Avoid browsewrap agreements where terms are only linked in a website footer, as courts often find these unenforceable.
2. Reasonable Opportunity to Review
Customers must have a reasonable chance to read your terms before agreeing to them. Presenting lengthy terms seconds before purchase or hiding them in small print may render them unenforceable. Provide terms in an accessible format with readable font sizes and clear headings.
3. Clarity and Plain English Writing
Courts interpret ambiguous terms against the party that drafted them. Write your terms in plain English that your average customer can understand. Avoid unnecessary legal jargon and complex sentence structures.
Be specific about your customers’ obligations. Clearly set out what customers must do, by when, and how. This includes clear payment deadlines and cancellation processes. Vague obligations create room for disputes and make terms harder to enforce.
4. Compliance with the ACL
The Australian Consumer Law (ACL) automatically grants consumers a set of non-excludable guarantees. These include guarantees that
goods are of acceptable quality, fit for purpose, and match their description; and
services are provided with due care and skill and within a reasonable time.
Any term that attempts to exclude or limit these guarantees is void and unenforceable. Where a business breaches a consumer guarantee, the ACL entitles consumers to a range of remedies including repair, replacement, or refund for goods. For services, consumers are entitled to a resupply of services or compensation.
5. No Unfair Terms
Courts will not enforce terms that are unfair. The ACL prohibits unfair contract terms in standard form consumer contracts. Standard form consumer contracts are those drafted by a business where the customer has limited opportunity to negotiate the terms, for example website terms and conditions.
A term is unfair if it causes significant imbalance in parties’ rights, is not reasonably necessary to protect your business’ legitimate interests, and would cause detriment to your customers if enforced.
Examples include clauses allowing your business to change terms without notice to your customer, or terminate customer contracts without any reason. Courts can impose penalties for unfair contract terms, including the terms being unenforceable, or a pecuniary penalty for corporations that is the greater of:
$50,000,000;
if the Court can determine the direct or indirect financial gain a company obtained from breaching the law, 3 times that value; or
if the Court cannot determine the direct or indirect financial gain a company obtained from breaching the law, 30% of the corporation’s adjusted turnover during the breach turnover period for the contravention.
6. Unfair Contract Terms in Small Business Contracts
The unfair contract terms regime does not stop at consumer contracts. The regime also covers standard form contracts with small businesses. Your terms and conditions can therefore breach the law even where you only sell to other businesses.
A contract counts as a small business contract where the other party employs fewer than 100 people, or turns over less than $10 million a year. The old contract value threshold no longer applies under the Australian Consumer Law, so a large contract with a small counterparty still falls inside the regime.
The same unfairness test applies. A court asks whether the term creates a significant imbalance, whether your business needs the term to protect a legitimate interest, and whether the term would cause detriment. A term that fails that test is void, and the rest of the contract continues to bind both parties.
Suppliers commonly trip on automatic renewal clauses, unilateral price variation clauses and broad indemnities that run one way only. Review these clauses in your business to business terms, not only in your customer facing ones.
7. Proper Notice of Changes
If you reserve the right to change your terms, specify how you will notify customers. Common methods include email notification or posting updates on your website with reasonable notice periods. Customers should have the option to reject changes by terminating the contract.
8. Consistency With Other Documents
Your terms must align with other business documents like your privacy policy and marketing materials. Contradictions create ambiguity and may render terms unenforceable. If your advertising promises certain features, your terms cannot contradict these representations.
What Are Common Mistakes to Avoid?
Many businesses copy terms from competitors or use generic templates without customisation. This approach can leave gaps in terms your business might require or include irrelevant clauses. Your terms must reflect your specific business model and industry.
Do not attempt to exclude rights that ACL guarantees to consumers. Such clauses are void and may expose you to penalties.
Failing to update your terms regularly is another common error. As your business evolves or laws change, your terms must adapt. You should review them at least annually.
When Should You Seek Legal Advice?
Consider getting legal advice when drafting terms for the first time, entering new markets or offering new products. Complex businesses with significant risk exposure should always have lawyers review their terms.
If customers frequently dispute your terms or if you face regulatory scrutiny, professional review is essential. The cost of proper legal advice is typically far less than the cost of defending disputes arising from poorly drafted terms.
“Most of the terms and conditions I review fail on acceptance, not on drafting. A business spends real money getting the clauses right, then buries the link in the footer and cannot prove the customer ever agreed. Fix the checkout flow first, because the strongest clause in the world does nothing if the contract never formed.”
Key Takeaways
Well-drafted terms and conditions protect your business and set clear expectations for customers. They must comply with the Australian Consumer Law, be fair, and address your specific business needs. Keep your terms current and enforceable by ensuring customers actively agree to them, writing in plain English, maintaining proper records and completing regular reviews.
By: Briarne Mead, Lawyer | legalvision.com.au