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Changes to the Australian Consumer Law affecting Retail Leases

The protection against unfair contractual terms previously provided to Australian consumers under the Australian Consumer Law (ACL) has been extended to certain kinds of small business under the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth). One area that will be significantly affected by this change is retail leases and the use of certain standard terms in leases.

The changes affect any contract where:

  • At least one party to the contract is a business that employs fewer than 20 persons;
  • The upfront price payable does not exceed $300,000 or if the contract has a duration of more than 12 months and the upfront price payable is not greater than $1 million; and
  • The contract is a “standard form contract”.

Whether a contract is a standard form contract will depend on a number of circumstances such as relative bargaining position and opportunity to negotiate, however it will typically be the standard type of contract that a lessor will endeavour to use in most of its dealings. The incorporation of the ACL allows a small business to apply to the Court to have an “unfair term” deemed void.

Terms are defined by the ACL as being “unfair” where they:

  • Cause a significant imbalance in parties’ rights and obligations; and
  • Are not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
  • Would cause detriment (financial or otherwise) to a party if it were to be applied or relied on.

The ACL provides examples of unfair terms such as terms allowing one party to unilaterally vary the terms of the contract or terminate it, terms limiting one’s party’s right to sue another or terms that limit a party’s vicarious liability for its agents. These examples provided by the ACL, however, are not exhaustive.

The ACCC recently investigated standard contracts amongst a number of retail landlords and identified a number of potentially unfair terms including:

  • Terms allowing the lessor to unilaterally vary centre rules;
  • Terms providing the lessor with an unrestricted right to recover costs from a lessee;
  • Terms affecting lessee’s property upon termination of the lease; and
  • Unnecessarily broad indemnities.

These new protections will affect all relevant contracts dated 12 November 2016 or later. Should a term be invalidated due to being unfair, it will not necessarily be fatal to the contract if the term can be excised, however it may preclude reliance on a fairer compromise that can be reached when the contract is being negotiated.

Paul Carroll, Partner
Alex Collie, Lawyer

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