ACCC warns against unfair early termination clauses

The ACCC’s enforcement and compliance priorities for 2025-26 include unfair contract terms in consumer and small business contracts, with a focus on harmful cancellation terms, including those associated with automatic renewals, early termination fee clauses and non-cancellation clauses.

An early termination clause is one that allows one or both parties to end the contract before its contracted end date. Early termination may require notice and paying fees.

It can benefit each party to include an early termination clause as it allows parties to exit the contract when circumstances change.

The purpose of an early termination fee is to compensate the party who would have continued to benefit from the contract for that early termination. For example, for the loss of revenue, for costs, or other damage caused by the early termination.

Early termination fee clauses may be unfair when:

• • The fee is higher than the cost of the early termination or it doesn’t account for any costs saved by the early termination;

• • The customer isn’t given reasonable notice of early termination;

• • The early termination fees are high following automatic renewal;

• • The term allows one party but not the other to end the contract early;

• • The clause penalises one party but not the other for breaching or ending the contract.

If your business has a problem with an unfair contract term, you should first try contacting the other business or individual. You can ask them to remove or change a term you think may be unfair.

Ultimately, only a court or tribunal can decide that a term is unfair.

Small businesses are protected from unfair contract terms in standard form contracts. There are steps you can take before you sign an agreement, including:

• • Checking how the agreement ends, including if it has an early termination clause;

• • Checking the cost to exit the agreement early, including how it is calculated and when it is paid;

• • Considering your circumstances and whether you may require an early exit from the agreement and plan accordingly;

• • If the contract is costly, consider getting legal advice before you sign.

To learn more, you can visit the ACCC’s small business toolkit and complete the module on unfair contract terms.

IMAGE: Small businesses are protected from unfair contract terms. AdobeStock.