Unfair contract terms regime – key considerations for property contracts

The Unfair Contract Terms Regime (UCT Regime) applies widely across contracts, including property-related agreements. As government entities often manage extensive property portfolios, understanding and applying the UCT Regime is essential to maintaining fair, compliant, and sustainable relationships in contracts such as:

• land sales contracts

• retail and commercial property leases or licences

• residential tenancy or accommodation agreements

• property easements and covenants.

Ensuring that contracts are fair and balanced is vital not only for compliance with the UCT Regime, but also for promoting public trust and transparency.

Terms in property contracts that may be considered unfair

In the recent case of Castronova v T Jung [2024] NTSC 55, the Court confirmed that clauses should be written in plain, easily understood language. 

The Court further determined that for the purposes of the UCT Regime, fairness and unfairness is assessed by the criteria in section 24 of the Australian Consumer Law (Sch 2, Competition and Consumer Act 2010 (Cth)), rather than by subjective or moral perspectives.

A term is generally considered unfair if it:

• causes a significant imbalance in parties' rights and obligations

• is not reasonably necessary to protect the legitimate interests of the benefiting party

• is detrimental (financially or otherwise) to the other party.

While each contract and term must be evaluated individually on a case-by-case basis, the following are examples of terms which may be considered unfair under the UCT Regime:

• Land Sale Contracts
  • clauses allowing unilateral changes by the vendor, especially when they have significant impact without clear notification
  • termination clauses that allow the vendor, but not the purchaser, to terminate the contract without cause
  • interest clauses for late completion where the interest rate is excessive and operates as a penalty rather than a genuine pre-estimate of a party’s loss
  • penalty clauses that apply to one party only in cases of breach or termination
  • terms enabling the vendor to unilaterally extend due dates or other critical deadlines.
• Commercial Leases or Licenses
  • ratchet clauses (that is, clauses preventing rent from decreasing after a review), especially as this is already prohibited in retail leasing legislation in multiple states and territories
  • automatic renewal clauses that extend leases or licenses without reassessment or tenant consent
  • termination-for-convenience clauses which allow the landlord to terminate the lease without a clear reason or without reasonable advance notice
  • clauses that allow landlords to terminate the lease for tenant breach without providing adequate opportunity for remedy
  • unlimited indemnity clauses requiring tenants to indemnify the landlord broadly, including for losses outside the tenant’s control or resulting from the landlord’s own negligence. limiting indemnity to specific premises or tenant actions is recommended, and “carve-out” clauses are encouraged to ensure landlord accountability.
  • clauses enabling the landlord to claim tenant property without notice, such as when tenants leave items behind at the end of a lease.

Many of these terms are already restricted by legislation like the Retail Leases Act 1994 (NSW), but government entities should still carefully assess new and existing contracts for alignment with UCT Regime standards.

Implementing Fair and Compliant Contracting Practices

To meet UCT Regime requirements, government entities should adopt practices that reinforce fairness, transparency, and compliance. They include:

1. Comprehensive reviews of contract precedents: Regularly review contract templates and assess the general drafting and language of each clause for fairness and transparency. Modify terms that could be considered one-sided or restrictive to the other party.

2. Facilitate negotiation opportunities: Present the contract as a starting point, rather than a final offer, to allow for negotiation. Keep records of discussions to demonstrate a collaborative and open approach.

3. Promote balanced negotiation practices: Reflect fair-dealing principles by considering both parties' interests and fostering reasonable, transparent agreements.

4. Consider transitioning tenants to updated contracts on renewal: When a lease or agreement is due for renewal, consider updating tenants to revised agreements that exclude potentially unfair terms, rather than renewing the contract on the same terms.

By ensuring contracts meet the requirements of the UCT Regime, government entities can reduce compliance risks, support transparency, and build trust with contracting parties. These measures strengthen long-term relationships and encourage sustainable contracting practices that align with the interests of public bodies and their tenants or purchasers.

Authors: Melissa Potter, Stella Sun and Pree Silva Das

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