Non Reiwa Contract for Sale of Business - PDF

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					Property Update                                                                                                                   June 2010


The effect of the new Unfair Contract Terms
legislation on the property industry
Following the recent introduction of the          The Bill amends the Trade Practices
Trade Practices Amendment (Australian             Act 1974 (Cth) (TPA) and the Australian
Consumer Law) Bill (No.2) 2010 (Bill),            Securities and Investment Commission
businesses in the property industry               Act 2001 (Cth) (ASIC Act) by introducing
should be aware that they need to review          restrictions on the ability of businesses to
their contracts to prevent terms being            include unfair terms in consumer contracts
deemed void.                                      in a standard form to consumers.

All businesses including property                 Consumers are often compelled to sign

developers, strata companies and real             standard contracts when purchasing

estate agencies will shortly be subject to        an interest in land. The unfair contract

the new laws which regulate unfair                provisions aim to make contracts clear in

terms in consumer contracts that are in           consumer transactions to help consumers
                                                  make an accurate assessment of the risks of
standard form.
                                                  signing a contract and to prevent businesses
The second reading of the Bill took place
                                                  pushing risk unfairly onto consumers.
on 17 March 2010, and the earliest date of                                                          Businesses must therefore firstly consider
effect of the Bill is 1 July 2010. However        Consumer contracts
                                                                                                    whether they supply consumer contracts.
from a recent conversation with the ACCC,         The key prohibition under the Bill is
                                                                                                    Under section 23(3) of the Bill, a consumer
we suspect that the Bill will take effect         contained in section 23(1):
                                                                                                    contract is a contract for:
on 1 January 2011. The Bill will apply to         A term of a consumer contract is void if:
contracts that are entered into or renewed        •	 the	term	is	unfair;	and                        •	 the	supply	of	goods	and	services;	or
after the commencement date of the Bill.          •	 it	is	a	standard	form	contract.                •	 sale	or	grant	of	an	interest	in	land


About Lavan Legal:
Lavan Legal is the largest independently owned law firm in Western Australia, comprising of over 200 staff which includes 21 partners.
The Property Services Group, a division of Lavan Legal, pride themselves on being the leaders in property and planning law. Advising on
all aspects of property acquisition, disposals and developments including syndications, we have one of the few accredited leasing experts
available to clients who has significant Australia-wide experience on very large and complicated leasing developments.
At Lavan Legal we believe in building long lasting relationships with our clients. We provide the best legal advice and service and continue to
improve our understanding of our clients’ needs, staff, history, motivations and directions. We provide clients with regular industry insights,
updates on changing technology and business strategies in an effort to take the relationship to a more successful position. We are committed
to increased efficiency through continuous innovation and process improvement.
Property Update
June 2010

to an individual whose acquisition of the        standard form unless proven otherwise. The
goods, services or interest is wholly or         onus therefore lies on the party asserting
predominantly for personal, domestic or          that the contract has been negotiated to
household use.                                   prove this. The Court will take into account
                                                 various factors defined in section 27(2)
Businesses should take care to consider
                                                 when deciding whether a contract is a
what is meant by an interest in land as
                                                 standard form contract, including whether
the definition in Schedule 1, section 2
                                                 one of the parties has all or most of the
(definitions) is very broad, being:
                                                 bargaining power relating to the transaction
•	 a	legal	or	equitable	estate	or	interest	in	
                                                 and whether the individual was given an
    the	land;
                                                 effective opportunity to negotiate the terms
•	 a	right	of	occupancy	of	the	land	or	of	a	
                                                 of the contract.
    building or part of building erected on
                                                 The initial presumption that all contracts
    the land, arising by virtue of the holding
                                                 are standard form places a burden on
    of shares, or by virtue of a contract to
                                                 businesses to take additional care to ensure        under	the	contract;	
    purchase shares, in an incorporated
                                                 the terms of their standard form contracts      •	 it	is	not	reasonably	necessary	in	order	
    company that owns the land or
                                                 are not unfair. If contracts are not standard       to protect the legitimate interests of
    building;	or
                                                 form, businesses should maintain evidence           the party who would be advantaged by
•	 a	right,	power	or	privilege	over,	or	in	
                                                 of all negotiations between the parties to          the term (presumed not to be unless
    connection with, the land.
                                                 present to the ACCC if necessary.                   proven	otherwise);	and
The Bill does not apply to business to
                                                                                                 •	 it	would	cause	financial	or	non-financial	
                                                 Once a business has determined that it
business contracts.
                                                                                                     detriment to a party if the term were to
                                                 supplies consumer contracts in a standard
Businesses selling or granting an interest                                                           be applied or relied on.
                                                 form it should consider whether any of its
in land will need to consider whether it is
                                                 terms are unfair.                               The relatively general definition of unfair
supplying the contract to an individual or
                                                                                                 does not stipulate the extent of the
                                                 Contracts that are created for specific
business and if supplying to an individual
                                                                                                 imbalance required in the parties’ rights and
                                                 developments (such as off the plan sale
whether it is for personal, domestic or
                                                                                                 obligations. On the face of the definition,
                                                 contracts) are likely to be regarded as
household use. The sale of an investment
                                                                                                 there could be a minor imbalance in
                                                 standard form contracts.
property to an individual for example would
                                                                                                 power and, if the term was not reasonably
not be subject to the provisions of the Bill.    Fair or unfair?                                 necessary to protect the interests of the
Standard form contracts                          Under section 24(1) of the Bill, a term of a    business, the term would be deemed unfair.
                                                 consumer contract is unfair if:
The Bill only applies to standard form                                                           Section 24 of the Bill requires a court to
contracts. Section 27(1) of the Bill states      •	 it	would	cause	an	imbalance	in	the	          take two key factors into account when
that a contract is presumed to be of a               parties’ rights and obligations arising     determining if a contract is fair:
Property Update
June 2010

•	 the	extent	to	which	the	term	is	              Exceptions to unfair contract provisions          void or other potential penalties.
    transparent, meaning expressed in            The prohibition in section 23 does not            There are likely to be short term costs
    plain language, legible and presented        affect terms if they do any of the following      involved in amending standard form
    clearly and readily available to any         (section 26):                                     contracts but these costs are necessary to
    party	affected	by	them;	and
                                                 •	 define	the	main	subject	matter	of	the	         ensure that your contracts comply with the
•	 the	contract	as	a	whole.
                                                     contract;                                     new regulations. The Bill also includes a
Examples of unfair contract terms                •	 set	the	upfront	price	payable	under	the	       wider range of penalties for breach of the
                                                     consumer	contract;	or                         TPA	including	injunctions,	damages,	non-
Examples of terms that would be unfair if
                                                 •	 are	required	or	expressly	permitted	by	        punitive orders such as community service
contained in standard consumer contracts
                                                     a law of the Commonwealth, State or           and civil pecuniary penalties of up to $1.1m
(section 25 of the Bill) are:
                                                     Territory.                                    for companies.
•	 a	term	that	allows	one	party	but	
                                                                                                   At this stage the unfair contract terms only
    not the other party to avoid or limit        Types of contracts caught by provisions
                                                                                                   apply	to	standard,	non-negotiated	contracts	
    performance	of	the	contract;                 In a property context some of the contracts
                                                                                                   between businesses and consumers. The
•	 a	term	that	allows	one	party	but	not	the	     that will be caught by the provisions will be:
                                                                                                   government is currently considering whether
    other	party	to	terminate	the	contract;
                                                 •	 sale	of	land	contracts	by	developers	          small businesses are adequately protected
•	 a	term	that	penalises	one	party	but	
                                                     to individuals that intend to live in the     by other provisions contained in the TPA,
    not the other party for a breach or
                                                     property	as	their	primary	residence;          so businesses should continue to watch for
    termination	of	the	contract;
                                                 •	 lease	contracts	to	individuals	where	          amendments that may mean that business
•	 a	term	that	allows	one	party	but	not	
                                                     the tenant intends to use the land for        to business contracts in some circumstances
    the other party to vary the terms of the
                                                     domestic	use;	and                             are governed by unfair contract legislation.
    contract;
                                                 •	 grant	of	any	interest	in	land	to	an	
•	 a	term	that	allows	one	party	unilaterally	                                                      If you would like any further information on
                                                     individual for domestic use such as an
    to vary the interest in land to be sold or                                                     the upcoming legislation changes and how
                                                     easement.
    granted,	under	the	contract;                                                                   these might impact on your business,
                                                 Our view is that the REIWA standard form
•	 a	term	that	allows	one	party	to	assign	                                                         please contact Peter Beekink, Partner, on
                                                 sale contract is unlikely to include unfair
    the contract to the detriment of the                                                           (08) 9288 6751 or email him on
                                                 terms as REIWA represents both individual
    other party without that other party’s                                                         peter.beekink@lavanlegal.com.au or
                                                 consumers and businesses. On this basis
    consent;                                                                                       Anita Barnes, Solicitor, on
                                                 the terms are generally perceived as
•	 a	term	that	limits,	or	has	the	effect	of	                                                       (08) 9288 6802 or email her on
                                                 impartial and fair in the real estate industry.
    limiting, one party’s right to sue another                                                     anita.barnes@lavanlegal.com.au.
    party;	and                                   Conclusion
•	 a	term	of	a	kind,	or	a	term	that	has	         Businesses should take steps to ensure they
    an effect of a kind, prescribed by the       are familiar with the new unfair contract
    regulations.                                 provisions to avoid clauses being deemed
Property Update
June 2010




                                                  Anita Barnes, Solicitor
                                                  LLB, BComm

                                                  Anita Barnes is a Solicitor in the Property        native title advice relating to geothermal
                                                  Services Group and having worked for large         energy and the interaction of geothermal
                                                  commercial and boutique corporate law              energy rights to land with native title
                                                  firms, she has comprehensive experience in         rights. She also provides advice on foreign
                                                  a variety of property transactions including       investment into Australia and the unfair
                                                  land access and environmental matters.             contracts legislation. Her experience
                                                                                                     includes working on LandCorp’s Ord River
                                                  Anita has experience in negotiating and
                                                                                                     Expansion project and the Oakajee Port
                                                  drafting a wide range of agreements such
                                                                                                     Rail project.
                                                  as joint venture agreements, sale of land
                                                  and lease documents, and land access               Contact Anita Barnes, Solicitor
                                                  agreements relating to native title. Her           on (08) 9288 6802 or
                                                  expertise in this area includes specialised        anita.barnes@lavanlegal.com.au




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