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Unfair Contract Terms and Commercial Leases
The Australian Consumer Law already protects consumers from unfair contract terms in standard form contracts. From 12 November 2016, the Treasury Legislation (Small Business and Unfair Contract Terms) Act 2015 (UCT Act) will apply extending the unfair contract term protections to small businesses. In this article we will consider implications that the UCT Act will have for landlords and tenants of commercial leases. For more information on the application of UCT Act generally, see our previous article in relation to its application to standard contracts and small business.
A standard form contract is usually prepared by one party where the other party has little or no opportunity to negotiate terms on a ‘take it or leave it’ basis. The UCT Act will apply to all standard form small business contracts entered into by businesses:
- for the supply of goods or services or sale or grant of an interest in land;
- which at the time the contract is entered into, employed less than 20 employees; and
- the price under the contract does not exceed $300,000, or $1 million if the contract lasts for more than 12 months.
Many commercial leases that are standard form contracts will qualify as a small business contract as generally a tenant would not be required to pay an amount exceeding $300,000 in rent for a lease of 12 months or cumulative rent over $1,000,000 where the lease is for a term longer than 12 months. If a term in the commercial lease meets the following conditions, it is likely that it will be considered as unfair:
- it would cause a significant imbalance between the parties;
- it is not reasonably necessary to protect the party requiring the term; and
- it would cause a detriment (financial or otherwise) to a party if applied or relied upon.
The UCT Act will apply to all standard form contracts entered into on or after 12 November 2016 including lease options exercised from this date. If a term in your commercial lease is unfair then it will be held to be void, therefore it is important for landlords and tenants to review the UCT Act to see if their commercial lease documents need to be updated or amended in line with the new laws.Elicia Lin