In our March 2023 edition of The Lot, we set out the Federal Government reform of the laws governing unfair contract terms (UCT). You can read our earlier article here.

The amendments to the laws governing UCT came into effect on 9 November 2023 and now apply to new contracts made at or after 9 November 2023, including any contracts which are renewed and any term that is varied after 9 November 2023. The changes impact many businesses who previously were not caught by the UCT regime, and introduces significant penalties for non-compliance.

Property developers using standard form contracts should be on notice to take the UCT laws seriously and to ensure all standard form contracts are reviewed and updated.

Application of UCT laws

The UCT laws apply to terms which are found to be unfair in contracts, which are either a consumer contract or small business contract and is a 'standard form contract’.

What is a ‘standard form contract’?

A contract is a ‘standard form contract’ where, in broad terms, the contract was prepared by the party who has all or most of the bargaining power in the transaction without or before any discussion between the parties about the transaction. There is a presumption that a contract is a standard form contract, however there are several factors in determining what constitutes a standard form of contract.

Given the expansion of the meaning of ‘standard form contract’ and ‘small business’, there is an increasing risk that any number of property developers’ documents could be subject to the new UCT regime. Contracts which may be considered a ‘standard form contract’ include:

• contracts for the sale of land, particularly ‘off the plan’ sale and house and plan contracts
• lease agreements
• put and call option agreements; and
• various service and building contracts.

See our article here for further detail on what constitutes a standard form of contract.

What is an ‘unfair’ term?

A term of a consumer contract or small business contract is ‘unfair’ if it:

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

Examples of unfair contract terms include terms that:

• allow one party (but not the other) to avoid or limit their responsibilities under the contract, such as exclusion of liability or indemnity clauses;

• allow one party (but not the other) to end the contract, such as a termination right for a failure of a condition or an event of default given to the vendor only but not the purchaser or a termination for convenience clause permitting the vendor to terminate the contract at its election and without any specific basis;

• penalise one party (but not the other) for breaking or ending the contract, such as penalties for cancelling the contract; and

• allow one party (but not the other) to change the terms or pricing under the contract, such as clauses permitting the vendor (but not the purchaser) to extend condition due dates in the contract (e.g. the sunset date) at the discretion of the vendor.

It is important for property developers who rely on standard form contracts to consider which clauses are critical, and which are not required to protect the developer’s legitimate interests – as the latter may be deemed to be an unfair term and attract significant penalties.

Changes made to the UCT regime

Below is a summary of the changes made to the UCT regime. The key change to UCTs is that proposing, applying or relying on UCTs will be expressly prohibited.

Overview of changes	Explanation
Expansion of the offence	It will be an offence to: enter into a standard form consumer or small business contract that contains an unfair term; or seek to rely on an unfair term in a standard form consumer or small business contract.
Expanded application of the UCT regime to a broader range of contracts	There is no contract value threshold. The UCT regime will apply to all standard form contracts regardless of the value of the contract. The definition of who is a small business (who has the benefit of the protections) has been expanded to include businesses that: employ fewer than 100 employees; or had less than $10 million in annual turnover in the previous income year. Repeat usage of a contract must be considered by a court when determining whether a contract is a standard form contract. A contract may still be considered a standard form contract regardless of whether the parties had an opportunity to negotiate minor changes.
Introduction of pecuniary penalties for contravention of the UCT laws	The courts have the power to impose pecuniary penalties for including or relying on an unfair contract term (in addition to the current ability to declare that term ‘void’). The maximum pecuniary penalties per contravention for corporations are the greater of: AUD $50 million three times the value of the benefit (if able to be determined); or 30% of the adjusted turnover during the period of the breach, or the previous 12 months, whichever is longer. For individuals involved in the conduct, the maximum penalty will be AUD $2.5 million.
Further remedies	The courts have expanded powers to provide remedies to address unfair contract terms. The courts may: Make orders to prevent or reduce loss or damage that may be caused by the term. It is not necessary to establish that a person has suffered or is likely to suffer loss or damage. Make orders applying to any existing contracts containing terms similar to one declared unfair, regardless of whether all contracts are put before the court. Issue injunctions to stop the use of contracts containing terms similar to one already declared unfair.

What should I do next?

Property developers should have an experienced property development lawyer review any contract templates currently being used (where the regime applies) to ensure the contracts do not contain clauses that may be considered unfair terms under the ACL regime.

This review should include any amendments or additional terms to a standard, published form of contract template being used by developers.

Do you require assistance in conducting contract reviews? Contact our Commercial Law Team or your usual Development Team contact