Australia: Protection for small business against unfair lease terms

Last Updated: 7 December 2016
Article by Rebecca Castley

In brief - Landlords and tenants should consider impact of new laws on retail and commercial leases

The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth) (Act) will allow a court to determine that unfair terms within a standard form "small business contract" can be declared as unenforceable. The new laws will take effect from 12 November 2016 and extend to a wide range of contracts, including for the leasing of land.

These new laws give small businesses the same protections afforded to consumers under both the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act) and the Competition and Consumer Act 2010, Australian Consumer Law (ACL).

Retail and commercial leases where party falls within small business threshold to be affected

Both retail and commercial leases may be affected by the Act, depending on whether one of the parties may be within the "small business" threshold. The new laws will apply where a contract is:

  • a "small business contract", being:
    • a contract for the supply of goods or services, or a sale or grant of an interest in land, and
    • at the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons, and
    • either the upfront price payable under the contract does not exceed $300,000 or the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000
  • in a standard form (essentially, where the terms and conditions of the contract are set by one of the parties and the other party has a limited ability to negotiate), and
  • is entered into, renewed or varied after the commencement of the Act (although in the case of a variation, the Act only applies to those parts of the contract which are varied)

There are some specific contracts which are excluded but these are not relevant in the context of leasing transactions.

The upfront price is money that is provided for the supply, sale or grant under the contract and is disclosed at or before the time the contract is entered into. This definition suggests that for the leasing context, it would only apply to premiums paid for the grant of a lease and would exclude rent. This means the Act would potentially apply to many leasing transactions. This has yet to be determined through case law.

Failure to provide opportunity to negotiate terms of the lease a factor in determining whether contract is a "standard form contract"

There is no definition of a standard form contract, however, the following factors must be considered in making a determination:

  • if one party has all or most of the bargaining power relating to the transaction
  • whether the contract was prepared by one party prior to any discussion relating to the contract between the parties
  • whether one party was required to either accept or reject the terms of the contract in the form presented
  • whether another party was given the opportunity to negotiate the terms of the contract
  • whether the terms of the contract consider the characteristics of another party or the transaction

If landlords fail to provide the prospective tenant with the opportunity to negotiate terms of the lease, the contract may be considered a standard form contract. It is therefore important that landlords document all communication and negotiation between parties during the leasing process.

Contract transparency important to consider, as well as examples of unfair terms under section 25 of the Australian Consumer Law

A term will be "unfair" if proven on the balance of probabilities:

  • 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 legitimate interests of the party who would be advantaged by the term
  • it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on

The legislation also places a heavy emphasis on transparency within contracts. Terms that are not deemed to be "transparent" may be considered as unfair. A term must be expressed in plain language, legible, presented clearly and be readily available to any party affected by the term to fulfil this requirement.

Guidance as to what may be considered as unfair may also be found in section 25 of the ACL. Section 25 provides a list of 13 terms which may be considered as unfair.

Penalties may apply where party seeks to enforce a term declared unfair

An unfair term in a small business contract will be void. The contract itself will continue in force, if it can continue to operate without the term.

There is no penalty imposed against a party for including an unfair term, but various remedies apply where a party seeks to enforce a term that has been declared as unfair, including compensation.

Landlords and tenants should be aware of new laws on unfair terms in a small business contract

Landlords should consider taking the following action:

  • consider what protocols will be required to identify new leases that may be standard form small business contracts
  • be alert to the possibility that lease renewals or variations entered into from 12 November 2016 may be impacted by the new laws
  • identify terms within current standardised leasing documents that may be void and remove or amend them, or at the least, consider the risks if those terms were found to be void

For tenants entering into a lease, it would be advisable to:

  • determine whether the tenant may be a small business (i.e. less than 20 employees) and if so, whether the upfront price payable exceeds the relevant thresholds
  • if so, a further ground of objection to an onerous term may be to argue that the Act will apply on the basis it is unfair or, where a landlord is seeking to rely on an onerous term in a lease entered into or varied after 12 November 2016, consider whether appropriate action should be taken to seek a declaration that the term is void

Rebecca Castley
Leasing - commercial and retail
Colin Biggers & Paisley

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Rebecca Castley
Similar Articles
Relevancy Powered by MondaqAI
ClarkeKann Lawyers
Coutts Solicitors & Conveyancers
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
ClarkeKann Lawyers
Coutts Solicitors & Conveyancers
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions