News

The Federal Government recently passed legislation amending the Australian Consumer Law and the Australian Securities and Investment Commission Act so that it will extend protections to small businesses from unfair terms in standard form contracts with other parties as from 12 November 2016.

A standard form contract is one pre-prepared by one party to the contract and where the other party is given no real opportunity to negotiate its terms.

The protections will apply in favour of small businesses (i.e. one employing less than 20 people) where it is offered a standard form contract by another party for:

* the supply of goods and services
* the sale or granting of an interest in land (including a lease)
* the supply of financial products and services

In order to obtain the protections the upfront price payable under the contract must be no more than $300,000.00 or $1 million if the contract is for more than 12 months.

Under the protections any unfair term in a standard form contract will be void and therefore not be binding on the small business.

Examples of terms that may be unfair include:

* terms that enable only one party to avoid or limit their obligations under the contract

* terms that enable only one party to terminate the contract

* terms that penalise only one party for breaching or
terminating the contract

* terms that enable only one party to vary the terms of the contract

In order to determine whether a term is unfair an application would have to be made to an appropriate tribunal or court. However, just the threat of making such an application may resolve the dispute with the other party.

It is important to note that the unfair contract protections apply to small businesses whether they are the acquirer of goods and services etc. or the supplier. This means that if a small business offers a standard form contract to another small business that other business can claim the unfair contract terms protections.

All small businesses must now consider reviewing all standard form contracts with other parties due to commence, renew or be varied from 12 November 2016 to determine whether any of the terms are possibly unfair and need amendment so as to not to offend the new regime.

November 2015

A new amendment to the Conveyancing Act 1919 was passed by the NSW Parliament and applies from 2 November 2015 to the purchase of off-the-plan residential strata units or residential lots i.e. strata units or land lots awaiting creation following the finalisation of building works or sub-division.

There have been concerns about developers using a “sunset clause” (a provision in a contract allowing the contract to be terminated if the strata or land lot is not created by the sunset date) to obtain a financial gain by deliberately delaying projects thereby entitling them to activate the clause and re-sell the property for a higher price. The purchaser would be left with nothing after incurring conveyancing costs.

The new amendment provides that a vendor must give the purchaser at least 28 days written notice before rescinding a contract under a sunset clause. The notice must state the reasons for the proposed rescission and the delay. Even then the vendor can only rescind with the purchaser’s written consent or after obtaining an order from the Supreme Court of New South Wales.

If the vendor is forced to apply to the Supreme Court it will take into account various factors such as:

* the terms of the contract
* whether the vendor has acted unreasonably or in bad faith
* the reason for the delay
* whether the subject lot has increased in value
* the effect of the rescission on each purchaser
* any other matter the Court considers relevant

The vendor is also required to pay the purchaser’s costs of the proceedings unless the refusal to consent is considered unreasonable.

If a developer determines that there is a substantial profit to be made by delaying a project and invoking a sunset clause to rescind a contract it can still make life difficult for a purchaser. One obvious tactic would be to offer a purchaser a financial incentive to consent to the rescission while at the same time warning the purchaser that it will claim in any application to the Supreme Court that the purchaser’s refusal to consent is unreasonable so that no legal costs will be recoverable.

So, despite this commendable attempt at consumer protection the developer will still find a way to apply maximum pressure to purchasers.
And many may well give in rather than face a long and costly legal battle.

November 2015

The Home Building Act 1989 deals mainly with the the licensing and regulation of builders performing residential building work. However, it also gives the benefit of warranties and insurance in respect of such work.

On 15 January 2015 certain retrospective amendments to the Act commenced. Also, on that date the Home Building Regulation 2014 commenced. The position is now as follows:

1.  The term “residential building work” means any work involved in:

(a)    the construction of a dwelling; or
(b)    the making of alterations or additions to a dwelling: or
(c)    the repairing, renovation, decoration or protective treatment of a dwelling.

The term also includes “specialist work” defined to include plumbing and electrical wiring work. However, excluded from “residential building work”  are any work (other than specialist work) the cost of which does not exceed $5000.00 and internal painting work.

2.    The term “dwelling” includes a swimming pool or spa, cupboards and vanity units affixed to the dwelling, driveways, retaining walls and fences.

3.    Warranties by a licensed contractor are implied into a contract to do residential building work including one that the work be done with due care and skill.

4.    The benefit of the warranties is extended to a successor-in-title to the person entitled to the benefit of the statutory warranties.

5.    The warranty period is 6 years after completion of the work for major defects and 2 years for all other defects.

6.    A “major defect” is defined as a defect in a major element of a building (i.e. a load-bearing component of a building that is essential to its stability or any part of it or a fire safety system or waterproofing) that is attributable to defective design, defective or faulty workmanship, defective materials etc. that causes or is likely to cause:

(i)  the inability to inhabit or use the building or part of it;
(ii)  the destruction of the building or part of it; or
(iii) the threat of collapse of the building or part of it.

7.    With regard to the commencement of statutory warranties, for new buildings in a strata scheme the completion of residential building work will occur when an occupation certificate is issued authorising the occupation and use of the whole building.

8.    A licensed contractor is required to take out insurance under the Act in respect of the residential building work to be done under a contract if the contract price exceeds $20,000.00. It covers the person on whose behalf the work is being done or successor-in-title against the risk of loss resulting from non-completion of the work because of the insolvency, death or disappearance of the contractor.

January 2015