While standard form contracts can save time, using them without
considering the unique circumstances of each agreement can be
risky. This article contains a general discussion of the importance
of written contracts, and the need for Cabinet Makers Association
(CMA) members to ensure that their standard form
contracts do not contain unfair terms.
The need for a written contract
The Home Building Contracts Act 1991 (Act)
provides that a written contract between a builder and homeowner
must be entered into for any home building or associated work
valued between $7,500 and $500,000. Cabinet makers are treated as
builders for the purposes of the Act.
Even though it is not required by the Act, we highly recommend
that written contracts be entered into for work valued under
$7,500. It is much easier to recover unpaid money when you have a
written agreement to rely on. It is also essential to ensure that
the terms of the written contract accurately reflect the agreement
between the parties.
However, care must be taken about the terms of a written
contract, particularly because of the statutory requirement
prohibiting unfair contract terms.
Unfair contract terms
The Act provides that a builder must not enter into a home
building contract containing any provision that is unconscionable,
harsh or oppressive (unfair). In deciding whether a provision is
unfair, some of the relevant considerations are:
the relative strengths of the bargaining positions of the
builder and the owner;
whether the owner was required to comply with conditions that
were not reasonably necessary for the protection of the legitimate
interests of the builder;
whether the owner was able to understand the contract; and
whether any undue influence or pressure was exerted on, or any
unfair tactics were used against, the owner by the builder.
Looking at the factors above, it is clear that the individual
circumstances of the homeowner are relevant in determining whether
a provision in a contract is unfair. It follows that a standard
form contract may not be appropriate in all situations. A homeowner
who enters into a contract containing an unfair provision may be
entitled to compensation from the builder.
Prevention is better than cure
The Act permits a form of contract to be submitted to the
Building Commissioner for an opinion as to whether any provision is
unconscionable, harsh or oppressive. If you are unsure about any of
the provisions in your standard form contract, we highly recommend
that you seek guidance from the Building Commissioner, or get
independent legal advice.
The Australian Consumer Law
Using a standard form contract also has implications under the
Australian Consumer Law (Consumer Law). The
Consumer Law is very similar to the unfair contract provisions in
the Act. It provides that unfair terms in standard form contracts
for the provision of consumer services are void. A term of a
consumer contract is unfair if:
it would cause significant imbalance in the parties' rights
and obligations arising under the contract; and
it is not reasonably necessary in order to protect the
legitimate interests of the party who would be advantaged by the
it would cause detriment (whether financial or otherwise) to a
party if it were to be applied or relied on.
Relevant matters for consideration include the extent to which
the term is transparent, and the contract as a whole. If a
homeowner asks the court for a declaration that a term in the
standard contract is unfair, it is up to the builder to prove that
the term is reasonably necessary to protect its legitimate
interests. Unfair terms are void and the contract will continue to
bind the parties if it is capable of operating without the unfair
Whether or not you are using a standard form contract, it is
important that you get the terms of a written contract right from
the beginning, and ensure that it does not contain any unfair
terms. These steps are essential to avoid disputes later down the
track. We highly recommend seeking legal advice early as a
preventative measure against future litigation.
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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On 12th November 2016, new laws will commence to protect small businesses from unfair terms in standard form contracts.
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