What is a contract?
Every day you enter into contracts without realising it. Every time you buy an ice-cream from the dairy or a coffee from a café, you are entering into a contract. For the contract to exist, something of value has to be exchanged, either at the time or in the future. A contract is when you offer to buy something and the seller accepts your offer. It can be spoken (verbal) or in writing. Although a contract doesn’t have to be in writing to be legally binding, some types of consumer contracts do:
It’s a good idea to have contracts in writing to serve as proof of exactly what has been agreed. This helps prevent or resolve any disagreements in the future.
It is really important to take your time to read through a contract before you sign it so you understand exactly what you are agreeing to. This may save you a lot of grief later on because you won't be caught out by any terms or conditions you didn't know about. If you need someone to go through a contract with you, you can ask your local Citizens Advice Bureau for help.
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What is a standard consumer contract?
A contract is a standard form contract if:
- its terms can’t be negotiated i.e. it is offered on a “take it or leave it” basis
- it is a consumer contract i.e. for goods or services supplied by a person or organisation in trade, and the goods or services are of the type normally used for personal or household use (not used for commercial purposes).
Some examples of standard form consumer contract include when you:
- enrol your child at a day care centre
- purchase daily deals or coupon specials
- sign up to a gym membership, pay TV, a telecommunications plan, electricity or gas services
- buy something on hire purchase or get a loan
- subscribe to pay TV
- rent goods
- book and pay for your holiday
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Can I cancel a contract part way through its completion?
Normally you can’t cancel a contract when the other party can still provide their side of the agreement, unless:
- the contract has a “termination” clause or term which gives you the right to cancel in certain circumstances with notice
- the other party agrees to accept your cancellation – for example, this may happen if they have another customer waiting for the same goods and services (but you may have to pay a cancellation fee)
- you have been given incorrect information about part of your contract (many consumer contracts include strict rules about the information that has to be provided)
- the other party breached an important term or condition of the contract.
Read our General problems with services page for more about cancelling a contract for services.
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What is an unfair contract term?
An unfair contract term is a clause in a standard consumer contract which:
- would give one party significantly greater rights or fewer obligations than the other party (e.g. it penalises one party for breach of contract, but not the other) and
- is not necessary to protect the legitimate interests of the party who would be advantaged and
- would be detrimental (e.g. cause a loss of money, inconvenience, delay or distress) to one of the parties to the contract.
For example, if a phone provider has terms in its one-year contract which allow it to vary its charges at any time, and also charges an early termination fee if the customer wishes to end the contract before the year is up, then the contract term is probably unfair.
However, if a one-year contract terms allows the provider to vary its charges at any time but also allows the customer to terminate the contract at such times without being liable for termination fees, then those contract terms are unlikely to be considered unfair.
Some examples of terms which are likely to be considered unfair include terms which allow one side to unilaterally:
- cancel or renew the contract
- vary the terms of the contract or the good or services supplied
- vary the price payable without providing a right for the consumer to end the contract
- avoid or limit performance under the contract
- penalise the consumer for breaching or cancelling the contract
- determine whether a contract has been breached.
Note that most insurance contract clauses are exempt from the unfair contract terms provisions.
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What can I do if I think my consumer contract has unfair contract terms?
Only the Commerce Commission is able to go to court to have a contract term declared “unfair”, so if you believe a trader is including unfair terms into its consumer contracts you can report it to the Commission.
If the court declares the contract terms to be unfair, it can result in the business being:
- prohibited from using those contract terms or enforcing them
- convicted and fined
- ordered to refund money to the affected consumer or pay damages to them.