Commercial leases subject to new unfair contract law
Assisted by Holly Pitt
The business world is abuzz with preparations for the new unfair contract law but have you considered the fact that if your business has commercial leases, they too could be affected?
To provide a little background, Australian Consumer Law currently covers a series of unfair contract terms. Currently, these only apply to consumer contracts however, as of 12 November small business contracts will be included in the provisions. Following implementation, the law will apply to standard form contracts entered into, renewed or varied from, and inclusive of, this date.
A standard form contract is as a contract that has been prepared by one party to the contract with no room for the other party/parties to negotiate the terms.
Under the new law, any agreement entered into involving a small business – that is, a business employing 20 or less employees - will be subject to the changes. The contract must be related to the supply of goods or services, or sale or grant of an interest in land; and the upfront price under the contract mustn’t exceed either $300,000 - or $1,000,000 if the contract duration is more than 12 months.
Many commercial leases will qualify as small business contracts. Contracts for the grant of interests in land, commercial leasing contracts are often entered into by businesses employing fewer than 20 persons, are frequently longer than 12 months and contain upfront prices that don’t exceed the threshold.
What terms are considered unfair?
Ultimately a Court or tribunal will make the call on whether a term is unfair but examples set out by the law 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 your contract is found to have unfair terms…
If it’s found that a term in your contract is ‘unfair’ then it will be held to be void. The remainder of your contract will remain binding in so far as is possible without the offending term. Currently, there are no fines or penalties which may be imposed for having a term declared unfair, however other relief may be available to the party who has brought the action.
Dean Claughton, Associate
Phone: +61 2 9895 9276