Unfair contract terms and leases

The “unfair contract terms” regime to protect small businesses from unfair terms included in standard form contracts has been in operation for quite some time now. During 21 March 2016 ACCC and ASIC hosted webinar, Dr Michael Shaper of ACCC noted that after 12 November 2016, ACCC, amongst others, will closely monitor the area of retail leasing.

So how does the introduction of “unfair contract terms” regime effect you as a landlord under a lease? 

The courts have not yet been asked to consider when a lease is to be considered a standard form contract and what terms shall be classified as unfair contract terms? Until such time that the courts provide guidance and an established test as to what terms can no longer be included in leases, the landlords must carefully consider the terms that are contained in the prospective leases. 

Landlords must note that the onus is on the landlord to rebut the “unfair contract term”presumption by proving that the unfair contract terms do not apply to a particular lease in question as the said lease is not a standard form contract.

In order to rebut that presumption, the landlord must prove that:
• the tenant was given the opportunity to negotiate the terms of the lease and was not offered the proposed lease on a “take it or leave it” basis;
• the landlord did not have all of the bargaining power relating to the lease; and
• the lease was prepared after a discussion with the prospective tenant as to the terms of the lease, although this would be problematic in relation to the retail lease as a proposed retail lease and the disclosure document must be drafted prior to offering the property for lease.

It is difficult to say as to what standard of proof would be required? Is an e-mail inviting the prospective tenant to review and execute the lease sufficient for it not to be classified as a standard form contract? What do you need to prove that the lessee has a right to negotiate? 

Until such time that the courts provide us guidance on this issue, it is important that landlords document all communication and negotiation between them and the prospective lessee’s during the leasing process.