5 Things Yoga and Fitness Studios should know about Unfair Contract Terms

I’m a big believer of making exercise a habit that you just don’t think about, and yoga or fitness studio membership is a great way to build regular practice into your daily life. The community, discipline and wellbeing that comes from committing to show up to class several times each week trickles down into all aspects of your life..

And I love working with clients who are committed yogis (or barre bunnies!) who have always dreamt of having their own studio.

But you need to be mindful when developing the rules for a fitness studio so you don’t include ‘unfair contract terms’. In my experience, business owners don’t openly think they are being ‘unfair’ when they include these terms, but they don’t turn their mind to how it affects their clients.

Here are some tips to stay safe:

Australian Consumer Law and unfair contract terms legislation applies to consumer contracts, including health and fitness centre membership agreements. Such agreements are generally standard-form consumer contracts, pre-prepared contracts that are not open to negotiation by the consumer.

1. What happens to my business if there is an unfair contract term contained in the membership agreement?

Individuals, the ACCC and state consumer protection agencies can all apply to have a term of a particular standard form contract declared unfair. If it is declared unfair, the term will be void in that particular contract and in all standard form contracts entered into by the business that contain the term.

Penalties are not imposed on a business for including an unfair contract term, however consumers and ACL regulators can seek redress for any loss incurred as a result of that unfair contract term.

If a business asserts that a term is legitimate or relies on it after it has been declared unfair by a court, it may be considered false or misleading conduct and in breach of s29(1)(m) of the ACL. Remedies in that instance include injunctions and remedial orders for any losses suffered, and pecuniary remedies may also apply.

2. What terms might be declared unfair in a standard form contract?

Broadly, terms that may be considered unfair under the ACL include those that:

  •         would cause a significant imbalance in the parties’ rights and obligations arising under the contract; or
  •         are not reasonably necessary to protect the business; or
  •         would cause detriment (financial or otherwise) to a consumer.

Terms that allow the health services provider to avoid responsibility when things go wrong contractually will be considered unfair, as will any terms that impose fees and charges not related to costs incurred to the provider.

Minimum term contracts, or contracts that impose a minimum period of time a fitness membership will apply for, are not considered unfair on that basis. However, automatic renewal of minimum term contracts may be unfair. Automatic renewal is generally not understood by health and fitness consumers, who expect their membership will automatically terminate at the conclusion of the minimum term. If automatic renewing term membership is to be included in the contract, there must be compliance with all of the following:

  •         the consumer is to be given a choice between their membership terminating or renewing at the end of the minimum term;
  •         the relevant application form must require that consumers opt in (rather than opt out) of having a minimum term automatic renewal;
  •         relevant consumer documents must draw consumers’ attention to the choice between automatic renewal and termination; and
  •         a reminder notice must be sent to the consumer whose membership will renew at the end of the minimum term. This must be sent close to the expiry, but with sufficient notice for the consumer.

3. Sometimes, an apparently unfair contract term may be counterbalanced by favourable terms within the same contract:

An apparently unfair contract term may be regarded in a better light when seen in the context of counterbalancing terms within the same contract. For example, a potentially unfair term may be included but counterbalanced by additional benefits for the consumer, such as a lower price. However; a favourable term will not counterbalance an unfair term if the consumer is unaware of the favourable term – such as implied terms, or terms hidden in fine print, terms found in another document, or terms written in legalese.

4. How can I ensure my cancellation terms are considered ‘fair’?

Consumers should be able to cancel their memberships by written notice to the centre, allowing for a reasonable notification period. Consumer Affairs Victoria considers requirements to fill in specific forms unnecessary and unfair. Cancellation forms may be provided – but must be optional.

When there are fees owing to the centre at the time of cancellation, a health centre cannot require those fees be paid prior to cancellation of the membership agreement. Any outstanding fees can be pursued from the member once the contract is terminated.

When cancelling an automatic-renewal minimum term membership, consumers should be able to give notice of their desire to cancel before the minimum term expiry date, so that the contract will terminate when the minimum term expires with no detriment to the consumer.

When a member wishes to cancel within the minimum term, terms that require the consumer to pay out the contract in full, or even to 50%, is likely to be unfair, the fee must be a genuine pre-estimate of the service provider’s costs in order to be considered valid.

5. What are unilateral variation clauses and when might they be regarded as unfair contract terms?

Unilateral variation clauses allow a health centre to vary items such as goods and services supplied under contract, the price, and the terms of the contract itself, while still binding the consumer to the contract. Generally, membership fees and terms of a contract should not be changed during the minimum term. If there is to be a change, sufficient notice must be given to consumers advising of the forthcoming change and alerting them of the option of terminating their membership without penalty.

An example of a change to the contract without reference to the consumer that was considered unfair is the case of Director of Consumer Affairs Victoria v Trainstation Health Clubs Pty Ltd (Civil Claims) [2008] VCAT 2092The Court found a clause in a consumer contract allowing a health club operator to unilaterally change the location of the club within a 12 km radius of the club’s original location was declared unfair as ‘it is a term to which the consumers’ attention is not specifically drawn, and which may operate in a way in the consumer may not expect to his/her disadvantage’.

This is general advice only. Liability limited by a scheme approved under Professional Standards Legislation. 

Published Sep 21, 2016

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