Most business owners assume that once both parties have signed, every term in the contract is enforceable. For a large negotiated agreement that is broadly true. For the standard form contracts that make up most of an SME's paperwork, New Zealand law has said otherwise for several years, and a surprising number of businesses on both sides of those contracts have not caught up.
What the rules actually cover
The unfair contract terms regime sits in the Fair Trading Act. It originally applied only to consumer contracts, and was extended to business-to-business agreements, described as small trade contracts, from 16 August 2022. It applies to contracts entered into, varied or renewed on or after that date.
Two conditions have to be met. The contract must be a standard form contract, meaning essentially take it or leave it terms presented without meaningful negotiation. And the trading relationship must have an actual or expected value of no more than $250,000 including GST in any 12 month period. Above that threshold, the regime does not apply and the parties are left to the contract they agreed.
What makes a term unfair
A term is not unfair simply because it is one-sided or because you later wish you had pushed back on it. A court applies a three part test: the term creates a significant imbalance in the parties' rights and obligations, it is not reasonably necessary to protect the legitimate interests of the party who benefits from it, and it would cause detriment to a party if it were applied or relied on.
The kinds of terms that tend to attract attention include those that:
- Let one party avoid or limit its own performance of the contract
- Let one party increase the price without giving the other party a right to exit
- Let one party unilaterally change the characteristics of the goods or services being supplied
- Let one party alone decide whether the contract has been breached, or what the contract means
- Limit the other party's right to sue, or restrict the evidence it can rely on
Core terms are carved out. A court will not assess the main subject matter of the contract or the price payable under it, so a deal being expensive is not the same thing as a term being unfair.
Why this cuts both ways for an SME
Most SMEs read this as protection, and it is. You are usually the smaller party signing a supplier's standard terms, and the regime gives some cover against the clauses buried at the back that nobody expected to be enforced.
The other half is easier to overlook. If your business issues its own standard terms of trade to customers, and those relationships fall under the threshold, your terms are inside the regime too. Terms of trade drafted years ago and copied forward without review are the most common place this shows up.
Enforcement is narrower than people expect. Only the Commerce Commission can take action to have a term declared unfair by a court, and once declared, the term cannot be enforced. A business that thinks a term it has signed is unfair cannot simply ignore it; the practical route is to raise it with the Commission or take legal advice. This is general information rather than legal advice, and anything high value or unusual is worth putting in front of a lawyer.
The practical problem: you cannot review what you cannot find
The detail that matters most operationally is that the regime bites on contracts entered into, varied or renewed on or after 16 August 2022. Renewal is the trigger most businesses miss, because an auto-renewing supplier agreement signed in 2019 and rolled over every year since has been renewed repeatedly, and the business may not have looked at the terms once in that time.
That turns what looks like a legal question into an administrative one. Reviewing your standard form contracts for unfair terms assumes you can produce a list of them, know which are standard form, know roughly what each is worth annually, and know when each one next renews. For a lot of SMEs, assembling that list is the actual work, and it is the reason the review never happens.
How Miova helps
Miova does not tell you whether a term is unfair. That is a judgement for you or your lawyer. What it does is make the review possible, by holding every agreement your business has signed in one searchable place, with the annual value, the counterparty and the next renewal date attached to each. When you want to know which supplier contracts sit under the threshold, or which ones renew in the next quarter and could be revisited before they roll over, the answer takes minutes rather than a week of inbox archaeology.
The bottom line
Standard form business contracts worth up to $250,000 a year have been inside New Zealand's unfair contract terms regime since August 2022, on both the buying and the selling side. Most SMEs are covered by it without realising, and a good number are also exposed through their own terms of trade. The review is not difficult. Knowing what you have signed, and when each agreement next renews, is the part worth fixing first.