UNFAIR CONTRACT TERMS IN REAL ESTATE CONTRACTS (INCLUDING LEASES)
From 9 November 2023, consumers and small businesses have had increased protection from unfair contract terms contained in standard form contracts under the Australian Consumer Law and Competition and Consumer Act 2010 (Cth). We wrote generally about these protections in our update Constructing a fair contract can save you millions.
Contracts entered into or varied on or after 9 November 2023 for the sale or grant of an interest in land to an individual for personal, domestic or household use, or to a small business, are specifically included for the increased protections. This would include both contracts for the sale of land and leases of land.
Terms in real estate contracts may fall foul of the new unfair contract terms protections. Most real estate contracts are provided by a vendor based on contract general terms based on now expired Victorian regulations. While the precedent general terms are unlikely to be considered unfair contract terms, if any special or additional conditions are added to the contract, there is a strong possibility that these may be considered unfair contract terms.
Real estate contracts are usually prepared by the vendor's solicitors or conveyancers, often very close to the time of sale, giving purchasers little opportunity to consider contracts and negotiate terms. Often any changes to the contract requested by purchasers are rejected by vendors. For this reason, real estate contracts, including special conditions, could be considered standard form contracts.
A term is considered unfair if it causes significant imbalance in the parties' rights, is not reasonably necessary to protect the vendor's interests and would cause detriment to the purchaser (financial or otherwise). Assuming the vendor has provided the real estate contract, examples of unfair contract terms could include (without limitation):
a term where only the vendor has rights to terminate the contract (eg. the vendor can terminate if the purchaser defaults but not vice versa);
a term where only the vendor can extend or change the timing for the contract (eg. the settlement date);
a term where only the vendor can change the terms of the contract without reference to the purchaser;
a term where the vendor restricts the rights of a purchaser on default, or which limits the consequences to a vendor for their default (eg. the purchaser may not make any claims, or the vendor is released from liability or indemnified by the purchaser); or
a term that permits the vendor to unilaterally to vary the characteristics of the property or goods provided on settlement (eg. a vendor developer for an off-the-plan contract who can change the plans or specifications for finished built property).
As there are potentially significant consequences of including unfair contract terms in contracts (including voiding of the term, civil offences, penalties in the millions (a maximum of $2.5 million for individuals, $50 million or more for corporations), vendors should carefully consider the special conditions included in their contracts. Purchasers may also have legal recourse should a vendor seek to rely on an unfair contract term, however purchasers will likely need to take vendors to court to enforce their rights.
Landlords and tenants should also take note of the unfair contract terms protections in relation to new or renewed leases from 9 November 2023. The above examples also have application for terms of leases, and each party should be careful that the terms comply with the fairness requirements.
If you are selling or buying land, or entering into leases of land, please contact us to discuss these issues.
Vittoria De Stefano
Principal
M 0407 091 301 | T 03 5226 8520
E vdestefano@ha.legal
Emma Buchanan
Senior Associate
M 0498 563 248 | T 03 5226 8529
E ebuchanan@ha.legal
Jamie McCallum
Senior Associate
M 0408 270 480 | T 03 5226 8563
E jmccallum@ha.legal
Madeleine Luppino
Associate
T 03 5226 8564
E mluppino@ha.legal
