Landlords beware – 1 month until new unfair contract term protections

As discussed in our July ebrief, from 12 November 2016 new legislation will extend the legal protections from unfair contract terms to include small business contracts.

With the commencement date now only one month away, we remind landlords that it is important to consider the implications of the new law and how it will affect them.

What leases will be affected?

The new laws will apply to a new lease or a renewal of lease entered into on or after 12 November 2016 which is a small business contract and a standard form contract. For further information on what is a small business contract and what is a standard form contract, please see our previous July ebrief and ebrief from September 2015. The new laws may also apply to leases varied on or after 12 November 2016. However, the new laws will only apply to the terms of the lease that are varied.

What could be considered an unfair term?

There is no express list of ‘unfair’ terms. The legalisation sets out that a court will consider a term to be unfair if:

  • it would cause a significant imbalance in the parties’ rights and obligations under the lease
  • it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term and
  • it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

Some examples of clauses in a lease which may be considered unfair are clauses which:

  • allow the landlord to unilaterally vary shopping centre rules which includes changing the required trading hours
  • provide that the tenant will receive no compensation if the building is demolished
  • permit the landlord to carry out the tenant’s obligations under the lease and recover costs from the tenant, but do not limit these to reasonable costs.

What happens if a term is declared unfair?

If a court makes a declaration that a term is unfair then the landlord will not be able to rely on the clause. The clause will effectively be removed from the lease.

What should you do?

The earlier landlords start the review process the more time we all have to ensure you are ready for the commencement on 12 November 2016. The leasing team at Meyer Vandenberg can review of your leases, incentive deeds and other standard contracts and advise you on the potential impact of the legislative changes on those documents.

For more information contact the Property, Commercial and Finance Team:

Christine Murray — Partner — Property, Commercial and Finance Team
(02) 6279 4402

Jennifer Jaeschke — Associate — Property, Commercial and Finance Team
(02) 6279 4361