Locked In and Liable: Why Restrictive Contract Terms Are a Growing Competition Law Risk for Business

Businesses that rely on standard form contracts to secure customer loyalty, whether through tiered incentives, bundled subscriptions, exclusivity conditions or sponsorship arrangements, should be alert to the competition law risks these terms can create.

The Australian Competition and Consumer Commission (ACCC) is increasingly scrutinising contractual arrangements that restrict customer choice or entrench market position and a recent court-enforceable undertaking accepted from REA Group Ltd and realestate.com.au Pty Ltd (REA) under section 87B of the Competition and Consumer Act 2010 (Cth) (the Act) is a timely reminder that this risk is not confined to any one industry.

Case Study: The ACCC's Concerns with REA's Contracts

REA's agreements required agencies to list all, or a proportion of, their properties on realestate.com.au as a condition of certain subscriptions and made sponsorship funding conditional on agencies committing to list or upgrade properties at particular tiers.

The ACCC considered these provisions may have hindered agencies from choosing other listing services, impeded rivals from competing for individual listings and increased barriers to entry, potentially breaching section 45 of the Act. REA has not admitted the alleged conduct but has acknowledged the ACCC's concerns. The same risks can arise wherever a business’ contracts tie customers to a single supplier, restrict switching or make discounts, funding or other benefits conditional on exclusivity.

REA’s undertaking included that for three years from 11 September 2026, REA must not enter into, or enforce, agreements requiring agencies to list all or the majority of their properties on realestate.com.au, nor condition sponsorship funding on such commitments. From 1 January 2027, listing tier contracts must allow agencies to downgrade at least 25% of eligible sale and rental listings to a lower tier. REA must also implement a competition law compliance program, including risk assessments, annual staff training and independent reviews.

A Broader Risk: Unfair Contract Terms in Standard Form Contracts

The REA matter concerned alleged breaches of section 45 rather than the unfair contract terms (UCT) regime, but it highlights a compliance risk that extends well beyond competition law and applies to any business using standard form contracts with consumers or small businesses. Since November 2023, courts have been able to impose substantial penalties, over $50 million for corporations, for including unfair terms in standard form small business or consumer contracts. A term may be unfair if it causes significant imbalance, is not reasonably necessary to protect a party's legitimate interests and would cause detriment if relied upon. Restrictive clauses of the kind at issue in the REA matter, such as automatic tier upgrades, unilateral variation rights, minimum volume commitments and lock-in periods are the type of provisions that regularly attract scrutiny under both the competition law and unfair contract terms regimes.

Key Takeaways for Business

1. Restrictive terms that limit customer choice, lock in commitments or entrench market position can attract ACCC action under section 45, even where a business does not admit wrongdoing.
2. Regulatory outcomes increasingly require structural changes to contracting practices, such as REA's obligations to amend its tier structure and implement a compliance program, not just financial penalties.
3. Standard form contracts should be reviewed regularly against both the competition law and unfair contract terms regimes, given the scale of penalties now available to regulators and the growing scrutiny of restrictive terms.

The REA case is a reminder that anti-competitive risk can sit quietly within everyday commercial terms. If your business uses standard form contracts, particularly those involving tiered incentives, exclusivity conditions, sponsorship arrangements or lock-in periods, it is prudent to have these reviewed before they attract regulatory attention.

Stanton & Stanton is happy to assist businesses in understanding their obligations under competition and consumer law. Please connect with us to find out more.