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Australian Consumer Law unfair term provisions provide tenants with a new weapon against landlords

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By Evelyn Marcou, Senior Associate, MST Lawyers

As a result of amendments to the Australian Consumer Law, tenants with less than 20 employees will soon have a new weapon in disputes with landlords and will be able to challenge a term in a lease that is  “unfair”.

The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 is the relevant legislation effecting the changes and has received Royal Assent. The changes do not come into force until November 2016 and will affect contracts (including leases) entered into or renewed on and from 12 November 2016. The changes will also apply to a provision in a contract that is varied on or after that date.

The legislation extends the existing unfair contract provisions available to consumers in Part 2-3 of the ACL to small businesses with less than 20 employees when the contract is entered into. Similar changes have been made to the Australian Securities and Investment Commission Act 2001.

In order to challenge an “unfair” term the “upfront price payable” must not exceed $300,000 (if the lease has a duration of 12 months or less) or $1,000,000 (if the lease has a duration of more than 12 months). As payments under a lease are usually made monthly it is unclear how the “upfront price payable” will be calculated.

A term of a lease will be void if the term is “unfair” and the lease is a “standard form contract”. A term is “unfair” only if it:

  • would cause a significant imbalance in the parties’ rights and obligations under the contract;
  • is not reasonably necessary to protect the legitimate interests of the advantaged party; or
  • it would cause financial or other detriment to the business affected if it were applied or relied on.

A lease will be presumed to be a “standard form contract” if a party to a proceeding makes that allegation unless another party proves otherwise. In determining whether a lease is a standard form contract a court may take into account matters that it considers relevant but must take into account whether one party has all or most of the bargaining power, whether the lease was prepared by one party before any discussions occurred, whether a party was in effect required to accept or reject the terms and whether a party was given an effective opportunity to negotiate the terms.

It should be noted that if a term is declared void, the lease will continue to bind the parties if it can operate without the unfair term.

What should landlords do?

To ensure that the legislation does not apply landlords should consider deleting lease terms that are not reasonably necessary for their protection and should avoid “take it or leave it” type of negotiations. Landlords should also consider including a term in the lease that requires a tenant to declare how many employees it has in circumstances where it is unclear, to determine whether, if there is a dispute, the unfair terms provisions apply.

For further information please contact our Property & Leasing team by email property@mst.com.au or by telephone Ph: +61 3 8540 0200.