This article is from the Australian Property Journal archive
HopgoodGanim Lawyers partner Tony Baldwin said the legislation, which has been passed by the Senate, may render certain provisions in “off-the-plan” sale contracts and other land sale agreements void because they are “unfair”.
The Trade Practices Amendment (Australian Consumer Law) Act (No. 1) 2010 (the ACL) regulates unfair terms in standard form consumer contracts and is expected to come into effect nationally on July 01.
The unfair terms provisions of the ACL provide that unfair terms in standard form contracts are void and therefore unenforceable. These provisions will apply where the contract is a “consumer contract”; is a “standard form contract”; and contains “unfair” terms.
Baldwin said given that most off-the-plan contracts are drafted to give the developer flexibility in designing and constructing the building, and developers will not normally agree to significant changes, off-the-plan contracts in most instances are likely to be considered standard form contracts.
Middletons Lawyers said under the changes, a term of a developer’s contract will be unfair if it causes a significant imbalance in the parties’ rights and obligations; is not reasonably necessary to protect the developer’s legitimate interests; and would cause detriment (whether financial or otherwise) to a purchaser if the term were relied on.
“To determine whether a term is reasonably necessary to protect developers’ legitimate interests, developers may be able to provide evidence about the market in which they operate, economic factors imposed by financiers, and other regulation by councils and planning schemes that require a level of flexibility for the developer.
“Developers should ensure that their contracts provide only as much discretion as is necessary to deliver the end product to the purchaser rather than excessive freedom, which may be deemed unfair by the ACL,” Middletons said.
The Act lists a number of examples of unfair terms, allowing one party, but not the other, to:
· terminate the contract;
· vary the terms of the contract;
· vary the upfront price without the buyer being able to terminate the contract;
· vary the characteristics of the land being sold;
· unilaterally interpret whether a contract has been breached;
· unilaterally interpret the meaning of a contract; and
· limit the right of one party to sue the other.
· penalise a party for breaching the contract.
Baldwin said this means that a number of usual clauses in off-the plan contracts, which allow flexibility in developing the site, may infringe the restriction on unfair terms.
“For example, “no objection” clauses, where the buyer cannot object to changes to the building, the lot or the scheme, or unilateral rights to terminate in favour of the developer, may be unfair to buyers and therefore void.
“Developers need to be careful that including such clauses does not create a “significant imbalance” in the parties’ rights and obligations, that the clauses are reasonably necessary to protect the developer’s interests, and that they do not cause detriment to the buyer if a term was relied upon,” he added.
“Where these types of clauses are to be included, developers will need to include provisions to support the necessity to include such clauses (such as a financier’s requirements or changing council requirements).
“Developers need to be careful that they do not enter into one-sided contracts. They will need to be seen to have fairer contracts that protect the interests of consumers, while balancing the need to preserve flexibility in developing the project,” he continued.
Under the Act, a term will not be unfair if it:
· sets the upfront price under the contract;
· defines the subject matter of the contract; or
· is required, or expressly permitted, by a law of the Commonwealth or a State or Territory.
“Given that a disclosure statement required to be given to a buyer will form part of a contract, this may mean that where a developer gives a further disclosure statement to a buyer after 1 July 2010. The provisions of the Act will apply to the contract, even though the contract was entered into before the Act commenced,”
Baldwin advises that developers should urgently identify any likely standard form contracts now that will continue to be used after 1 July 2010, and consider whether they should be reviewed for compliance with the Act.
“For ongoing developments, you should review existing sales practices and consider implementing new systems that put in place detailed reporting practices to record all dealings with potential buyers. This will help to demonstrate that buyers negotiated the terms of their contracts, or at least that the opportunity to negotiate the terms existed,” he concluded.
Australian Property Journal