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 email@example.com 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 firstname.lastname@example.org. 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 email@example.com Your personal details Lavan Legal may use personal information we have collected about you to send materials to you about legal and related issues we think will be of interest, as well as news about Lavan Legal and the services we provide. 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