Australia: Use with Caution: Terms in Industry Standard Building Contracts May Be Seen As Unfair

Last Updated: 15 September 2010

Adam Carlton-Smith, Partner

Peter Lamont, Senior Associate

Lucy Elkins, Trainee Solicitor

The use of industry standard contracts in the building and construction sector is widespread. For example, the Housing Industry Association and the Master Builders Association have each developed a suite of industry standard contracts for use by builders, subcontractors and home owners. However, industry standards should now be used with caution and reviewed against the backdrop of the new 'unfair contract' provisions contained within the Trade Practices Act.

What the 'unfair contract' provisions mean for home owners

The amendments to the Act highlight that industry standard contracts do not mean that both parties are on equal footing. The amendments mean that contractual terms that overtly favour builders must be removed to ensure that 'mum and dad home owners' are not disadvantaged by blanket provisions.

Summary of the amendments

Under the new regime, a term of a building contract will be void if it is 'unfair' and is found in a standard form contract.

The building contract must be wholly or predominately for personal or domestic use - commercial building contracts will not be subject to the new laws.

Standard form contracts

In determining whether a contract is a 'standard form contract', the court will consider:

  • the bargaining power of the parties;
  • any discussions between the parties before the contract was prepared;
  • the opportunities for the parties to negotiate the terms of the contract; and
  • whether the contract takes into account the specific characteristics of the parties.

Although there is a strong presumption that an industry standard building contract is a 'standard form contract' for the purposes of the Act, this issue is yet to come before a court for interpretation.

Unfair terms

A term of a building contract will be 'unfair' if it:

  • would cause a significant imbalance in the parties' rights and obligations arising under the contract;
  • is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the terms; and
  • would cause detriment to a party if it were to be applied or relied on.

Further, a court must take into account the extent to which the term is transparent (eg in plain language and legible) and the contract as a whole.

What to look out for

When presented with an industry standard building contract, both parties need to be aware of clauses that give the builder the following rights:

  • Unilateral rights (eg a term which permits only the builder to terminate the contract)
  • Non-reciprocal rights (eg a term which allows the builder to vary the contract price, without giving the home owner a right to terminate)
  • Limiting rights (eg a term which limits either party's right to sue the other party)

If terms in the contract exist which reflect any of the rights mentioned above, the contract may be in breach of the provisions of the Act, which will be an issue for both the home owner and the builder.

How we can help

Before signing an industry standard building contract, please feel free to contact HopgoodGanim's Construction, Infrastructure and Major Projects team. We can help you by:

  • reviewing the contract,
  • providing advice on terms which may be considered unfair; and
  • recommending amendments to the contract to place both parties on equal footing and to ensure proper compliance with the new 'unfair contract provisions'.

© HopgoodGanim Lawyers

Gold Employer of Choice - ALB magazine, April 2010
Finalist, Brisbane Law Firm of the Year, ALB Australasian Law Awards 2010

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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