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Is your real estate contract affected by the changes to the ACL?
From 12 November 2016, proposed changes to Australian Consumer Law will mean that businesses that employ up to 19 people will enjoy the same protections as ordinary mum and dad consumers from unfair terms in standard form contracts for the sale or lease of land.
The protections will be afforded where the upfront price payable under the contract is up to $300,000 or the contract has a duration of more than 12 months and the upfront price payable under the contract is up to $1,000,000. While this might not affect many sale and purchase transactions, it is likely to affect a number of leasing transactions.
To be ‘unfair’, a term must:
· cause a significant imbalance in the parties’ rights and obligations;
· not be reasonably necessary to protect the legitimate interests of the party advantaged by the term,
· cause financial or other detriment (such as delay) to a small business if it were relied on.
Terms that may be unfair, include:
· terms that enable one party (but not another) to avoid or limit their obligations under the contract;
· terms that enable one party (but not another) to terminate the contract;
· terms that penalise one party (but not another) for breaching or terminating the contract;
· terms that enable one party (but not another) to vary the terms of the contract.
If a term is determined as ‘unfair’, the term will be void and will not be binding on the parties. The rest of the contract will continue to apply to the extent it is capable of operating without the unfair term.
Ultimately, only a court can decide whether a term is unfair.
Standard Form Contract?
Consideration will have to be given to whether or not a standard form contract is the basis of the transaction. A standard form contract is usually one that has been prepared by one party and the other party has little or no opportunity to negotiate the terms – that is, it is offered on a ‘take it or leave it’ basis. There is a presumption that a contract is a standard form contract, so the party that prepared the contract has to prove it isn’t (e.g. by demonstrating a real willingness to make requested changes to key terms).
In deciding whether a contract is a standard form contract, a court may take into account any matters it considers relevant, but it must take into account:
· whether one of the parties has all or most of the bargaining power in the transaction;
· whether the contract was prepared by one party before any discussion occurred between the parties about the transaction;
· whether the other party was, in effect, required to either accept or reject the terms of the contract in the form in which they were presented;
· whether the other party was given any real opportunity to negotiate the terms of the contract;
· whether the terms of the contract take into account the specific characteristics of the other party or the particular transaction.
Contracts for the sale or lease of land involving small businesses will need to be measured against the proposed changes to Australian Consumer Law. Anyone dealing with a small business needs to ensure that their own sale or lease documentation is compliant. Similarly, small businesses that are presented with standard form sale contracts or leases should have those documents checked and fully reviewed.
Kathleen Ready | Senior Partner | +61 7 3238 0604 | firstname.lastname@example.org
Dan McManus | Special Counsel | +61 7 3238 0611 | email@example.com