Interior Designers, Are Your Contracts Still Protecting You? | New changes to Australian Law
There’s a lot for interior designers and stylists to consider when developing their client service agreements (aka client contracts), and this applies even more so today than ever before.
It’s worth pausing here and noting that just because a clause has been included in a contract, doesn’t mean it can be enforced. (You might want to read that twice!)
Consumers (aka clients) are becoming increasingly aware of their rights around contract terms and termination rights than ever before. Why? Because there has been a national discussion around changes to unfair contract term laws, and this was implemented into legislation in November 2023.
Unfair Contract Terms for Small Business
As of November 2023, small businesses no longer fly below the radar when it comes to the terms they include in their contracts, meaning they are now subject to a greater scope of legislative rules – and the big one is that small businesses are not able to include unfair contract terms in their contracts (and if they do, then they face significant consequences).
How has this happened?
It happened due to the introduction of new legislation, the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 under the Competition and Consumer Act.
Does this apply to Interior Design Contracts? If the business is a small business by definition, then Yes, it most certainly does.
What are Unfair Contract Terms?
Unfair contract terms are terms in a contract (and an agreement, or terms and conditions, are contracts) that cause a significant imbalance in the parties' rights and obligations, are not reasonably necessary to protect the legitimate interests of the party advantaged by the term, and would cause detriment (financial or otherwise) if relied on.
One of the most common examples I see relates to cancellation and termination clauses in an interior design contract. These can be called a range of different things, from client service terms and conditions, to design terms – the name doesn’t matter; the agreement that an interior design and/or stylist has with clients is what I am referring to here.
Cancellation and termination clauses typically state something along the lines of a client cannot terminate a project early other than for a breach by the designer; or if a client does wish to cancel or terminate the project, then a hefty fee has to be paid to the designer – and this is regardless of the fact that the design services have not yet been completed (or in some cases, provided at all). Often I see these types of clauses included in an interior design contract where it doesn’t take into account that at the point of termination or cancellation there is a significant portion of services that have not yet been delivered, thus no value to the client has been provide in line with what the client is told they will need to pay. This sort of clause is an unfair contract term.
To overcome this, an interior designer or stylist needs to pay careful attention to what a reasonable termination or cancellation clause will look like for their business.
It will need to consider things such as:
What is reasonably necessary to have in place to protect the legitimate interests of the business?
How does the workflow operate, has work been turned away to accommodate a particular project?
Is there a waitlist; is the designer able to bring work forward, and if so, what lead time is required?
Itemised time spent on a project to date.
If furniture procurement or custom design is part of the services then the extent of work.
Consequences of Unfair Contract Terms
If challenged, an interior design contract (being a small business contract) if found to include unfair terms can have the entire contract voided/set aside (as opposed to the previous remedy of voiding that clause only), in addition to facing potential financial penalties that range from $50,000 up to $2.5 million or more.
It’s simply not worth the risk!
There is a lot to know
When developing an interior design contract, or similar style contracts for stylists, designers and stylists need to take steps to ensure that the terms they include in their contract are fair and reasonable and don’t breach any of the unfair contract term laws.
Just as important, designers and stylists need to focus on the sequencing around issuing contracts/client agreements/quotes/proposals/scope of works/terms and conditions, to make sure they are complying with the Australian Consumer Law requirements – these require consumers to have advance notice of a business’ terms/agreement and allow the consumer an opportunity for review and consideration BEFORE deciding to enter into a contract of service with that business.
This is so important that I cannot stress the importance of sequencing enough. This is by far one of the most common areas I see interior designers and stylists fall into error, and it’s simply due to a lack of knowledge (we don’t know what we don’t know, after all).
Moving Forward
Small business owners need to take proactive steps now to review and update their contracts. Interior designers and stylists – this means you need to review your client agreements/contracts, and review your processes and systems too. Engage your business lawyer to provide the advice you need to get this right. Remember, in business, prevention is better than cure.
A business should review its legal documents, including client agreements, at least annually or when things change in the business. This way, businesses can ensure they are keeping up with changes in the law that apply to them and that the way they work, their services, and their pricing are always up to date and current.
The removal of exemptions for small businesses regarding unfair contract terms is serious. This move represents a real focus on consumer fairness and this focus is here to stay.
It’s important for business owners to get on the front foot with ensuring contracts are fair, transparent, and comply with current legislation, including the Australian Consumer Law. By taking the time to do this, business owners are protecting their businesses, maintaining positive client relationships, and are setting themselves up to avoid costly legal disputes moving forward.
This topic is also discussed in Episode #167 of the Rise Up in Business podcast Unfair Contract Terms - what are they & do your contracts need to change?
If you would like help in your interior design and/or styling business with reviewing your existing legal documents, or developing them from scratch, be sure to reach out here and we can explore how we can work together to support your business. I’m always happy to help.
