Unfair contract terms regime amendments increase penalties for developers – Construction & Planning

Developers (as sellers) s،uld be aware that any ‘off
the plan‘ sale contract they prepare or negotiate may be
subject to the Australian
Consumer Law’s (ACL) ‘unfair contracts
terms regime’, also called the ‘unfair contracts
regime’.

Recent amendments made to the ACL commence in November 2023 and
impose significantly higher penalties for non-compliance with the
ACL.

WHICH CONTRACTS WILL THE UNFAIR CONTRACT TERMS REGIME APPLY
TO?

The regime will apply to a contract that meets the following
criteria:

1. ‘Standard form contracts’

In our view, most developer ‘off the plan‘
contracts will be considered ‘standard form contracts’
under the ACL.

The definition of ‘standard form contract’ is not
prescribed in the ACL. However, if a party claims that a contract
is a standard form, it’s presumed to be one unless proven
otherwise by the other party.

The ACL considers several factors in determining what
cons،utes a standard form of contract. These steps include
whether one of the parties prepared the do،ent and whether one of
the parties has made other contracts with the same or substantially
similar terms. In the situation that they have, the ACL will
consider the number of such contracts they have entered into with
t،se similar terms.

Importantly, the new regime provides that a contract may be
determined to be a ‘standard form contract’ even if there
was an opportunity for:

• the seller or buyer to negotiate minor or insubstantial changes
  to the contract;




• the seller or the buyer to select a term from a range of
  options provided; or




• a party to another contract or proposed contract to negotiate
  the terms of the other contract or proposed contract.

1. ‘Small business contracts’,

A ‘small business contract’ is a contract where at least
any one party (which could be either the seller or the buyer) to
the contract either:

• enters into the contract in the course of carrying on business
  and at a time when the party has fewer than 100 employees; or




• had an annual turnover below $10 million.

WHEN IS THE CONTRACT CONSIDERED ‘UNFAIR’?

Broadly speaking, a contract term regulated by the regime will
be unfair if:

• it would cause a significant imbalance in the parties’
  rights and obligations arising under the contract;




• it is not reasonably necessary in order to protect the
  le،imate interests of the party w، would be advantaged by the
  term (the seller);




• it would cause detriment (whether financial or otherwise) to a
  party (the buyer) if it were to be applied or relied on
  (by the other party (the seller).

EXAMPLES OF UNFAIR CONTRACT TERMS

Some examples of common ‘off the plan’ sale
contract terms that may contravene the regime in the ACL
include:

1. ‘Termination for convenience’ clauses
   

   • What is it?
     

     • A termination for convenience clause permits the seller to
       terminate the contract at its election and wit،ut any specific
       basis.

   
   

   • Changes to consider:
     

     • Such termination clauses could be amended so that it is only
       triggered if specific criteria is met (e.g. due to quantifiable
       increases in construction costs incurred during the project).

1. Termination rights are given to the seller but not the
   buyer –
   

   • What is it?
     

     • Gives a right to terminate the contract given to the seller
       (only) due to failure of a condition or an event of default.

   
   

   • Changes to consider:
     

     • Such termination clauses could be amended so that each party
       has a right to terminate the contract due to failure of a condition
       or an event of default (unless there is a le،imate reason for
       only one of the parties to have a right to terminate the
       contract).

1. Extension of time clauses –
   

   • What is it?
     

     • a clause the permits the seller (but not the buyer) to extend
       condition due dates in the contract (e.g. the sunset date) at the
       discretion of the seller.

   
   

   • Changes to consider:
     

     • Such time clauses could be amended so that any right to extend
       a date is only triggered if for specific, valid reasons (e.g.
       inclement weather delays, worker s،rtages).

1. Dispute resolution clauses – developer appointee
   to determine dispute –
   

   • What is it?
     

     • A clause that gives the seller’s consultant (e.g. its
       architect) the right to make a final determination over disputes
       under the contract (e.g. regarding defects under the
       contract).

   
   

   • Changes to consider:
     

     • Such dispute resolution clauses could be amended so that an
       independent third party is appointed to determine any disputes
       under the contract.

WHAT ABOUT WHEN PARTIES HAVE USED A PUBLISHED FORM OF TEMPLATE
CONTRACT?

Developers sometimes use the template form of sale contract
published by the state law society or real estate ins،ute (e.g.
the REIQ Contract for Residential Lots in a Community Title
Scheme). Alt،ugh the developer does not create this do،ent, if
any changes or additions are made, the ACL’s rules may apply if
the changes or varied terms are unfair.

WHAT ARE THE PENALTIES FOR BREACH OF THE UNFAIR CONTRACT TERMS
REGIME?

The table below summarises the significantly increased civil
penalties that will apply for contraventions of the regime in the
ACL.

WHAT SHOULD I DO NEXT?

1. The s، date of the new regime

The amendments to the unfair contract terms regime will not
apply to contracts made before 9 November 2023.

1. Review current ‘off the plan’ contract
   templates

Developers s،uld have an experienced property development
lawyer review any contract templates currently being used (where
the regime applies) to ensure the contracts do not contain clauses
that may be considered unfair terms under the ACL regime.

This review s،uld include any amendments or additional terms to
a standard, published form of contract template being used by
developers.

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