If you are a private lender, a financier, or a business owner who has ever signed a loan agreement, the law around unfair contract terms has changed in ways that directly affect you. Since November 2023, Australia's expanded Unfair Contract Terms regime means that certain clauses in standard form contracts are no longer just voidable — they are outright illegal. A recent Queensland Supreme Court decision put this regime to the test for the first time in the context of a standard loan agreement, and the outcome carries important lessons for anyone involved in private lending or commercial finance arrangements.
What Changed Under the Unfair Contract Terms Regime?
Australia's Unfair Contract Terms regime was significantly strengthened in November 2023 under the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act). The key change is that unfair terms in standard form contracts are now illegal, not merely unenforceable. This is a meaningful shift — it exposes businesses that rely on unfair standard form contracts to regulatory action, not just a failed court argument.
The regime applies to consumer contracts and small business contracts that are also financial products or contracts for the supply of financial services. For private lenders and financiers, this means your loan agreements, offer letters, and indicative terms sheets may all fall within scope.
Under section 12BF of the ASIC Act, a term in such a contract is void if three conditions are met:
- The term is unfair;
- The contract is a standard form contract; and
- The contract is a financial product or a contract for the supply of financial services.
The expanded regime also broadens what counts as a "standard form contract," which matters a great deal when assessing whether your documents are at risk.
The Landmark Queensland Case: DCZ v Semper
The case of DCZ Early Learning Pty Ltd v Semper Mortgage Management Pty Ltd [2024] QSC 120 was the first to test the fairness of a standard loan agreement charging clause against the updated laws. While this is a Queensland decision and is not binding on courts in other states, it offers useful guidance on how the regime will be interpreted.
The borrower (DCZ) argued that charging clauses in an Indicative Letter signed on 8 December 2023 were unfair under s12BF of the ASIC Act. Semper, the lender, had to either show the Indicative Letter was not a standard form contract, or that the clauses in dispute were not unfair.
The court found in Semper's favour. The key reason was that DCZ had a genuine opportunity to negotiate and, through its broker, actually did negotiate the terms of the agreement. The contract was not handed over on a "take it or leave it" basis. This meant Semper successfully rebutted the presumption that the contract was a standard form contract, and the unfair terms challenge failed.
How Courts Decide Whether a Contract Is a Standard Form
When assessing whether a contract is a standard form, a court must weigh up six factors:
- Whether one party had all or most of the bargaining power;
- Whether one party had made the same or similar contracts before, and how many times;
- Whether the contract was prepared by one party before any discussion about the transaction took place;
- Whether the other party was effectively required to accept or reject the terms as presented;
- Whether the other party had a genuine opportunity to negotiate; and
- Whether the contract terms take into account the specific characteristics of the other party or the particular transaction.
In the DCZ v Semper case, the court held that the negotiations between the parties meant the contract was tailored to the transaction, not a pre-set standard form. Crucially, DCZ had not only been given the opportunity to negotiate — it had actually used that opportunity to shape the deal.
This tells us something important: the existence of negotiation, even partial negotiation, can be the difference between a contract being classified as standard form or not. Lenders who can demonstrate genuine give-and-take in their contracting process are in a much stronger position.
Practical Steps for Private Lenders and Financiers
If you are a private lender or financier operating in Australia, here is what you should be doing to reduce your exposure under the Unfair Contract Terms regime:
1. Build genuine negotiation into your process
Do not present your loan terms as fixed and non-negotiable. Allow borrowers the opportunity to genuinely engage with the terms — and document that opportunity. Even where you use consistent base terms, being open to negotiation on key commercial points can help demonstrate that the contract is not a standard form document.
2. Avoid "take it or leave it" ultimatums
The moment you tell a borrower they must accept your terms as presented or walk away, you are strengthening their argument that this is a standard form contract. Courts look closely at how the contracting process unfolded, so your conduct matters as much as the document itself.
3. Encourage borrowers to get independent legal advice
Requiring or strongly encouraging borrowers to obtain independent legal advice before signing is good practice on multiple levels. It supports the argument that the agreement was negotiated properly, reduces the risk of later disputes, and protects both parties. Consider including a clause noting that the borrower has had the opportunity to seek legal advice.
4. Review and update your loan documents
If your offer letters, indicative terms sheets, or loan agreements have not been reviewed since the November 2023 changes, now is the time. The expanded regime applies to new contracts entered into after the changes came into force, but the risk of using outdated documents is real. A well-drafted Loan Agreement that is tailored to the transaction rather than a one-size-fits-all template is your first line of defence.
What This Means for Borrowers
If you are on the other side of the table — a business owner or director who has been asked to sign a loan agreement or indicative letter — you have more protections than you may realise. If you are presented with a standard form contract containing terms that seem one-sided, those terms may now be illegal, not just open to challenge. Before you sign any financing arrangement, it is worth having a solicitor review the document to identify any clauses that may be unfair under the ASIC Act.
Pay particular attention to charging clauses, default provisions, and any terms that give the lender broad discretionary powers. These are the kinds of terms that courts will scrutinise when assessing whether a contract term is unfair.
Getting Your Loan Documents Right
Whether you are lending money to another business or borrowing to fund your operations, having a properly structured loan agreement protects both parties and reduces the risk of disputes down the track. A clear document that reflects the actual terms of the deal — including any negotiated variations — is far less vulnerable to an unfair contract terms challenge than a generic template.
Mode.law offers a library of plain-English legal documents designed for Australian founders, directors, and business owners. Whether you need a Loan Agreement to formalise a private lending arrangement or other commercial contracts for your business, you can explore the full document library at /documents. Getting the right documents in place from the start is one of the simplest ways to manage legal risk in your business.