The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act (UCT Act) will be applicable from 12 November 2016. The UCT Act will prohibit unfair contract terms in standard form contracts where one party is a small business. It will be put in place to help small business owners gain access to some of the Australian Law Consumer protections that currently protect consumers from unfair contract terms.

This article will investigate whether commercial and retail leases will be considered under the UCT Act changes, what kind of terms will be relevant and what the implications are for both tenants and landlords.

Will the UCT ACT Apply to Leases?

The UCT Act will apply to all ‘standard form contracts’. There is no definition of this in any of the relevant Acts, but is generally understood to be a contract prepared by one party and provided to the other on a ‘take it or leave it’ basis. This means there is usually little to no room for the other party to negotiate the terms of the contract.

With leases, there may be some scope for negotiation, however, generally the landlord has the upper hand, and the tenant is generally required to accept the terms presented to them.

What Leases are Affected?

Currently, both commercial and retail leases will be affected, because they can be included within the scope of a ‘standard form contract’ as discussed in the previous section. It is unclear whether or not retail leases will remain included within the realm of the UCT Act, as these leases are already heavily regulated by the retail leasing legislation in most states and territories. It is difficult to say whether or not a retail lease that complies with this legislation will be.

The UCT ACT sets out that the unfair contract terms protections will apply where one party is a small business, being a business that employs less than 20 people and where the upfront price under the contract does not exceed $300,000, or $1 million if the contract lasts for more than 12 months.

Most leases generally last over three years, with options to renew the term of the lease. Even if a lease was less than the 12 month period, it is unlikely that a tenant would be required to pay the amount of $300,000 upfront. This suggests that most leases would fall within these conditions.

What are ‘Unfair Contract Terms’ in a Lease?

If a term of the lease meets the following three conditions, it is likely that it will be considered unfair:

  • the term would cause significant imbalance between the rights of the landlord and the tenant;
  • it is not reasonably necessary to protect the interests of the party requiring the term; and
  • it would cause detriment to the other party if it was relied on.

Some examples of this include the following:

  • where the landlord is allowed to terminate the lease for any breach of the lease;
  • where the landlord is allowed to take the tenant’s property that is left when the tenant leaves the premises and the lease has ended; and
  • where the landlord requires the tenant to take out additional insurance which is specified by the landlord.

What does this Mean for a Tenant and a Landlord?

The UCT Act will affect all standard form contracts that are entered into or renewed after 12 November 2016. This includes leases where an option to renew is taken up after this date, despite the contract being originally entered into prior to this date.

It will be important for landlords to consider the implications of the UCT Act and whether or not any terms of new leases or leases up for renewal are at risk of being considered unfair. Having a leasing specialist review current or potential leases will help determine whether or not any terms need to be deleted or amended to ensure they will not be considered unfair and declared void.

As a tenant, if your lease is up for renewal fairly soon or you are entering into a new one, it will also be important to consider whether your landlord has included any unfair terms. You can then bring this to the attention of the landlord to require them to amend the terms of the lease to ensure compliance with the new legislation.

Key Takeaways

If you require assistance with determining whether the terms of a lease are unfair based on the new requirements, contact LegalVision today on 1300 544 755 or contact us on this page. Our specialist leasing team will be happy to advise you to ensure you are well protected from 12 November 2016.

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