If you’ve ever reviewed a lease only to find yourself questioning the veracity of one or more of its clauses, you’re not alone. Chances are the parts of the contract you find most alarming pertain to auto-renewal and unlimited indemnity clauses along with variation of rental prices at the landlord’s discretion – all among the most common problems found within contracts, according to leading commercial law firm JHK Legal.
At these times, signing the lease for the sake of expediting the process to avoid losing the property is not the right way to proceed. Thanks to the introduction of the business-to-business (B2B) unfair contract terms laws in November 2016, the wiser, not to mention safer, option is having the lease reviewed by a solicitor in respect to unfair contract terms.
These amendments to legislation surrounding small business and unfair contract terms have kept lawyers particularly busy preventing a host of problems, says JHK Legal consultant Rod Lindquist. A former President of the Law Society of South Australia, Mr Lindquist is among those who now spend much time assisting small businesses with reviewing leases, identifying clauses deemed “unfair” and aiding with negotiations around removing and/or amending clauses.
The major problem however facing not only those in commercial property but business in general is ignorance. “People aren’t generally aware of the unfair contract law,” Mr Lindquist says.
“Secondly, many of those who have looked at it have missed the point the legislation applies to both parties.
“You could be a large business with hundreds of employees that leases premises from a structure such as a shopping centre trust which probably has no employees, which then falls under the legislation.
“It’s a bit like an iceberg - the tips have come out and been identified particularly by the ACCC (Australian Competition and Consumer Commission) but there are a lot of underlying issues in relation to the commercial issues that would suggest that all commercial landlords need to review their leases.”
Another significant trap is the belief extensive negotiation over a lease is enough. In the eyes of the new laws, it is not.
“Those people who specialize in leases tend to negotiate a great deal,” Mr Lindquist points out. “Their attitude is not to concern themselves with the legislation because negotiation has gone on. But the onus of proof lies on the author of the document to prove that it’s not a standard contract.”
Law in action
Since unfair contract legislation was changed, the ACCC has commenced two major court business-to-business unfair contract terms proceedings. The most high-profile case involved the ACCC investigating the transactions of Servcorp, and leading supplier of serviced office space and virtual office services such as office suites, secretarial services, IT, communications and personal assistants. Servcorp’s clients are mainly Australian small businesses.
The ACCC launched proceedings in the Federal Court seeking a declaration that some of the terms contained within Servcorp’s standard contracts were unfair and void.
Among the terms found unfair were those that automatically renewed a customer’s contract unless the customer had opted out and then permitted Servcorp to unilaterally increase the contract price; permitting Servcorp to unilaterally terminate contracts; unreasonably limit Servcorp’s liability or impose unreasonable liability on the customer, and lastly, permitting Servcorp to keep a customer’s security deposit if a customer failed to request its return.
The outcome involved Servcorp establishing an unfair contract terms compliance program for its Australian business and paying the ACCC’s costs of $150,000.
The bottom line is that you should now tread carefully when preparing or signing standard form contracts, particularly if the contract’s value is under $300,000.
The ACCC is on the lookout for unfair terms, and extra vigilance could mean the difference between a trouble-free future and becoming the next poster child for the unfair contract regime.
So, how do you know when your lease is regarded as a ‘small business contract’? (*)
Your business can rely on this legislation where:
- At least one party is a business that employs less than 20 people – whether that be you or your landlord;
- Upfront price (including rent, operating costs and/or security deposits) payable does not exceed $300,000, or does not exceed $1million if the duration is more than 12 months; and
- The contract is a ‘standard form contract’.
All contracts are presumed to be a ‘standard form contract’ unless proven otherwise.
Among factors considered to infer a lease contract is not standard in form include:
- Where both the landlord and tenant were involved in the preparation of the contract;
- Both parties have the same bargaining power;
- Unpressured choice to accept or reject the lease;
- Ample opportunity to negotiate the terms; and
- Where the terms of the lease take into consideration specific factors/characteristics of the party/lease.
If you have answered yes to several of the above factors, your lease may not be subject to the unfair contract terms regime, according to JHK Legal.
(*) Source: JHK Legal
JHK Legal, consultant Rod Lindquist – (03) 9927 3600
To find out more about the ACCC’s Unfair Contract Terms see www.accc.gov.au/business/business-rights-protections/unfair-contract-terms