Do unfair contract terms apply to retail leases?
Assisted by Holly Pitt
On 12 November 2016, legal protection for unfair contract terms will expand to include small business contracts. More information on this new legislation is in Raymond Frangi’s article, 'Impact of the Unfair Contract Terms Legislation on Standard Form Construction Contracts'.
The question is however, how these new changes will affect leasing. The Australian Competition and Consumer Commission (ACCC) has already indicated that these changes will affect retail leasing specifically.
How does a retail lease fit the description of a 'small business contract'?
If under the changed legislation, for example, you have a retail lease to a business with less than 20 employees for two years with a starting rent of $130,000, it’s likely that the lease would be considered to be a small business contract.
This is because a ‘small business contract’ occurs when at least one party to a contract is a business employing fewer than 20 people, the upfront price payable doesn’t exceed $300,000 and (if the contract has a duration of more than 12 months) the upfront payment doesn’t exceed $1,000,000.
This ultimately means that if a retail lease fits the requirements of a small business contract, then the legislation around unfair contracts terms will apply. This means that a tenant can apply to the court to have a clause or clauses in the lease declared void if the lease is a standard form contract and the clause/clauses could be considered unfair.
What does this mean for you?
Landlords should be wary of the new legislation. Make sure you know how many employees your tenant has. Importantly, even if your tenant has more than 20 employees, you could still be liable under new legislation as it applies to the number of employees your tenant had at the time the lease was entered into.
Familiarise yourself with any potential clauses in your lease that tenants may take issue with so that you can protect yourself and your lease from application by a small business to the court.
If you should have any further questions on how to protect yourself from the new legislation, please contact: