Do You Know About Unfair Contract Terms? (2026 Updated)

If you run a business, chances are you use contracts every day - quotes, online terms, supply agreements, customer sign-ups, subscription terms, and more.

But there’s a catch many business owners don’t realise until a dispute hits: some contract terms can be unfair, and if they are, they may be unenforceable (even if your customer “agreed” to them).

This 2026 update reflects the current enforcement focus and expectations around unfair contract terms in New Zealand - especially for businesses using standard form contracts at scale, including online.

Below, we’ll break down what unfair contract terms are, when the rules apply, the clauses that often cause trouble, and practical steps you can take to keep your contracts strong and enforceable.

What Are “Unfair Contract Terms” In New Zealand?

In New Zealand, “unfair contract terms” (often shortened to UCTs) are clauses in certain contracts that create an unfair imbalance between the parties.

The key law here is the Fair Trading Act 1986. It contains a regime that allows a court to declare a term in a standard form contract “unfair”. If a term is declared unfair, it can’t be relied on - which means the clause may effectively be treated as if it doesn’t exist.

UCT protections are most commonly associated with consumer contracts, but in NZ they also apply to many small trade contracts as well (for example, contracts you use with small business customers).

So What Makes A Term “Unfair”?

Under the Fair Trading Act, a term may be unfair if (in broad terms):

• it would cause a significant imbalance in the parties’ rights and obligations; and
• it is not reasonably necessary to protect the legitimate interests of the business relying on it; and
• it would cause detriment (financial or otherwise) to the other party if it were applied.

This isn’t about banning “tough” commercial deals. It’s about stopping one-sided boilerplate terms that the other party didn’t realistically have the ability to negotiate, and that go further than what’s reasonably needed to protect your business.

UCTs Are Different From “Unenforceable Contracts” Generally

It’s also worth separating UCT rules from the broader concept of whether a contract is valid in the first place. A contract can be legally formed, but still contain a clause that can’t be enforced.

If you’re unsure about the basics, it’s helpful to understand what makes a contract legally binding and how unenforceable contracts can arise. UCTs are one specific “unenforceability” risk - but they’re a common one for businesses relying on templates.

When Do Unfair Contract Term Rules Apply (And When Don’t They)?

This is where many business owners get tripped up. The UCT regime doesn’t apply to every contract. It applies when you use a standard form contract in certain contexts.

Standard Form Contracts: The Key Trigger

UCT rules usually apply to standard form contracts - contracts that are essentially “take it or leave it”, where one party prepares the terms and the other party has little real ability to negotiate.

Common examples include:

• online website or app terms
• subscription or membership agreements
• customer agreements issued to every new customer
• standard supply agreements presented to smaller counterparties
• platform/vendor onboarding terms

If you’re using a template or a set of terms across multiple customers, it’s worth understanding how a standard form contract is assessed, because the label you give it isn’t what matters - the practical reality is.

Consumer Contracts

UCT protections apply to many standard form contracts with consumers (people acquiring goods or services for personal, domestic, or household use).

In practice, this often affects:

• online retailers and service providers
• gyms and subscription services
• home services and trades servicing residential customers
• digital products and SaaS sold to individuals

Consumer law can overlap here too. Alongside the Fair Trading Act 1986, many businesses also need to comply with the Consumer Guarantees Act 1993 when selling to consumers (including around acceptable quality and remedies).

Small Trade Contracts

UCT protections also apply to many standard form contracts with small businesses, where the transaction value is under the relevant threshold and the other side meets the “small trade” criteria.

This matters if you sell B2B but your customers are typically small operators - think sole traders, small agencies, independent retailers, or small hospitality venues.

When UCT Rules Usually Don’t Apply

UCT rules generally won’t apply where:

• the contract is genuinely negotiated (not standard form), and both parties have real bargaining power
• the term is a “main subject matter” term (e.g. what is being supplied) or a transparent price term (this depends on the drafting and the context)
• the contract is outside the scope of consumer/small trade coverage

That said, even if UCT rules don’t apply, overly one-sided terms can still backfire commercially (and sometimes legally, depending on other laws and doctrines). So it’s usually worth getting your contracts balanced and commercially sensible.

Common Unfair Contract Terms Businesses Should Watch Out For

Most unfair contract term problems come from clauses that are copied-and-pasted without being tailored to how the business actually operates.

Here are some of the most common clauses that can raise red flags - and what to consider instead.

1) Unilateral Variation Clauses (You Can Change Anything Anytime)

A classic example is a clause that says you can change the contract (price, features, scope, service levels) whenever you like, without notice, and the customer is stuck with it.

Better approach: If you need flexibility (for example, for subscription services), build in:

• clear notice periods
• limits on what can be changed and when
• a right for the customer to cancel if the change is materially adverse

2) One-Sided Termination Rights

Another common issue is where the business can terminate “for any reason” immediately, but the customer can’t terminate at all (or faces heavy penalties even when the business is at fault).

Better approach: Termination clauses should align with genuine risks. For example:

• allow termination for non-payment, breach, insolvency, or misuse
• include reasonable cure periods (where appropriate)
• avoid “instant termination” unless there’s a strong, defensible reason

3) Excessive Limitation Of Liability Clauses

Limiting liability is normal (and often essential), but problems arise when the clause is drafted so broadly that it removes responsibility for almost everything - including scenarios the business could reasonably control.

Liability clauses should match your risk profile, and they need to be coherent with other parts of the contract (like warranties, service levels, or refunds).

This is especially important in online terms. If you run an ecommerce store or online service, your Terms and Conditions should be drafted to protect your business without creating unfair surprises for customers.

4) Automatic Renewals With Hidden Traps

Auto-renewals are common in subscriptions, retainers, and service packages - and they can be perfectly legitimate. The risk is where auto-renewal is “buried” and the customer is effectively locked in without meaningful awareness or choice.

Better approach:

• make renewal terms prominent and transparent
• give reminders before renewals (especially for longer terms)
• avoid exit barriers that are out of proportion

5) “You Pay Our Costs No Matter What” Clauses

Clauses that make the customer pay your legal costs or collection costs in every scenario - even if you’re wrong - can raise fairness issues.

Better approach: Consider cost clauses that apply only where there’s a clear breach, or that align with what a court might reasonably order.

6) Broad Indemnities From The Customer

Indemnities can be appropriate, especially where the customer controls certain risks (like content they upload, or instructions they give you).

But “all loss, for any reason, ever” indemnities - especially where the customer isn’t at fault - are more likely to be challenged.

Better approach: Limit indemnities to:

• third-party claims caused by the customer’s breach or negligence
• specific risks that the customer actually controls
• losses that are reasonably foreseeable and connected to that risk

How Unfair Contract Terms Can Hurt Your Business (Beyond The Legal Risk)

Even if you never end up in court, unfair contract terms can cause real day-to-day problems for a growing business.

You Might Not Be Able To Enforce Key Clauses

If a clause is declared unfair, you can’t rely on it. That can be a big deal if the clause was central to your operating model - for example, if it was the clause you were counting on to change pricing, stop services, or avoid refunds.

It Can Trigger Disputes And Chargebacks

Unfair terms often lead to the kind of customer complaints that escalate quickly: refund demands, negative reviews, chargebacks, and formal disputes.

And once a dispute arises, a badly drafted clause is rarely the “shield” business owners hope it will be - it can actually become the weak point the other side attacks.

It Can Damage Trust And Conversions

Here’s the practical reality: customers read terms more than we think - especially in high-value purchases or B2B deals. If your terms look aggressive or one-sided, you can lose sales before you even know it.

Clear, fair, well-structured contracts tend to increase confidence and reduce friction. They also reduce the amount of time you spend negotiating the same issues over and over.

It Can Create A “Domino Effect” Across Your Contracts

Many businesses reuse the same terms across multiple channels: website, proposals, invoices, onboarding emails, platform checkouts.

That means one unfair clause can create risk across dozens (or thousands) of customer relationships at once.

How To Make Your Contracts More UCT-Safe (Practical Checklist)

The goal isn’t to make your terms “soft”. It’s to make them defensible, transparent, and aligned with your legitimate interests.

Here are practical steps you can take right now.

1) Use Plain English And Make Key Clauses Prominent

Transparency matters. A term is more likely to be viewed as unfair if it’s hidden in dense legal wording or buried where no one will notice it.

Focus on:

• clear headings
• short clauses
• consistent definitions
• pulling “high impact” terms (like termination, fees, renewal) into a clear structure

2) Align Your Terms With How You Actually Operate

This is a big one. Many UCT problems come from “aspirational” terms - clauses that say you can do things you don’t actually do (or don’t need to do).

Ask yourself:

• Do we really need the right to change any term at any time?
• Do we actually terminate customers without notice, or do we usually give a warning?
• Do we really exclude all liability, even when we’re clearly at fault?

If the contract and your real process don’t match, your terms are more likely to be attacked, and harder to defend.

3) Avoid One-Way Powers (Or Balance Them)

One-way powers aren’t always unfair - sometimes they’re necessary - but they should be justifiable.

Consider balancing mechanisms like:

• notice and consultation requirements
• limitations on the scope of the power
• termination rights for the other party if the change is material
• objective triggers (“for material breach”) rather than subjective triggers (“for any reason we decide”)

4) Make Sure Your “Legal Documents Stack” Works Together

If you’re collecting personal information (even something as simple as email addresses), your customer-facing terms should align with your Privacy Policy and actual privacy practices under the Privacy Act 2020.

If you’re providing ongoing services, a properly tailored Service Agreement can reduce the temptation to rely on overly broad “catch-all” clauses to protect you.

5) Don’t Rely On Disclaimers Alone

Disclaimers can be useful, but they aren’t magic. If the overall effect is unfair, a disclaimer won’t necessarily save the clause.

That’s why it’s worth getting your Disclaimers integrated properly into your overall legal framework, rather than bolted on at the end.

6) Get Your Contracts Reviewed Before You Scale

Imagine this: your business takes off, you onboard 300 customers using the same terms, then you discover a core clause is problematic.

Fixing it then is harder (and sometimes messy). Fixing it early is usually quick and cost-effective.

Even if you’re starting from a template, a legal review can help you tailor the clauses to your business model, pricing structure, and delivery realities - and keep you compliant from day one.

Key Takeaways

• Unfair contract terms are a real risk for businesses that use standard form contracts, and they’re regulated in New Zealand under the Fair Trading Act 1986.
• UCT rules commonly apply to consumer contracts and many small trade contracts, especially where the other party can’t realistically negotiate the terms.
• High-risk clauses include unilateral changes, one-sided termination rights, excessive limitation of liability, hidden auto-renewals, broad indemnities, and unfair cost recovery provisions.
• Even if you don’t end up in court, unfair terms can lead to disputes, refunds, chargebacks, reputational harm, and lost sales.
• You can reduce UCT risk by using plain English, making key terms prominent, matching terms to your real business practices, and avoiding “one-way power” clauses where possible.
• Having your terms reviewed early (before you scale) is one of the simplest ways to protect your business and keep your contracts enforceable.

If you’d like help reviewing or updating your contracts so they’re commercially strong and UCT-safe, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.