Playing fair.

12 April 2018 | Reading time: 2 minutes

In life, we frequently see power players flexing their proverbial muscles. From setting the status quo, to further leveraging their lead, the smaller player often has no choice but to toe the line. This is a dynamic commonly seen between parties contracting into retail leases.

The unfair contracts regime was introduced in November 2016 as a response to the growing frequency of this ‘take it or leave it’ approach. Specifically, the regime acts to protect small businesses from unfair contract terms imposed on them via standard form contracts.

Good form vs bad form.

Standard form contracts contain standardised, non-negotiable provisions. They’re typically drafted by a contracting party who routinely engages in such transactions, and who usually holds superior bargaining power.

This is frequently seen in retail leases where, for instance, a shopping centre landlord is leasing premises to a small retail business.

Because this regime was specifically introduced to provide greater protection to small businesses, it will only apply where:

  • a tenant is a business employing 20 employees or fewer; and
  • the contract ‘upfront price payable’ does not exceed $300,000 (if the lease term is 12 months or fewer) or $1 million (if the lease term is more than 12 months).

Determining whether a contractual term is ‘unfair’ can be difficult. Before the unfair terms regime was introduced, many businesses stood to benefit from this grey area by guilefully using small print to include onerous terms unbeknownst to the contracting counterparty.

However, the recent case of ACCC v J.J. Richards Pty Ltd[1] is the first instance where the ACCC has exercised additional powers afforded by the unfair contracts regime. While this case did not concern a retail lease, it does provide a textbook example of what landlords ought not to do when on the playing field.

Getting match fit.

The ACCC has provided specific recommendations to help landlords and tenants avoid disputes over retail leases; a couple of which are described below:

1. The final siren

  • Landlords should not have a right to terminate a lease immediately following a breach, without providing tenants an opportunity to remedy.
  • Leases should instead provide for landlords to first notify tenants of their intention to terminate, allowing tenants reasonable time to remedy the breach; after which they may terminate.

2.  Head high tackles

  • Indemnity clauses should not be so unreasonably broad such that tenants indemnify against losses caused or contributed to by the landlord.
  • These clauses should instead specifically clarify the types of losses against which a landlord is indemnified. No head high tackles.

Avoid being benched.

To avoid clauses being rendered unenforceable by a court, landlords should review their lease documents. Validity of clauses can be as precarious as the font and drafting style used.  Whether it’s about winning, losing or just playing the game, seeking legal advice when contracting for a lease is critical to even out the playing field for landlords and tenants alike.

[1] [2017] FCA 1224.