New Unfair Contract Laws - A Pill or Poison for Property Contracts?
New consumer protection laws restricting the use of unfair terms in some property contracts will start Australia
wide early next year, by the Federal Government adding to the Trade Practices Act.
Will the new laws affect you?
The new laws apply to standard form contracts for the sale of property by companies to individual consumers.
How will the new laws work?
Under the current Bill, if a consumer contract contains an unfair clause, that clause is of no legal effect
and will be treated as if it never existed.
What is a consumer contract?
A consumer contract is a contract for a sale of (or grant of an interest in) land to an individual whose
gaining of the interest is mainly for personal, domestic or household use or consumption. Therefore,
sales to companies or sales of property to individuals that will be used for investment purposes
will probably not be a consumer contract.
Does the new law apply to any real estate contract?
No – the contract must be a “standard form” contract.
What is a standard form contract?
A standard form contract is basically one where the terms are
not able to be negotiated by one of the parties to it - a “take it or
leave it” styled negotiation. In deciding if a consumer contract is
a standard contract a court must look at whether:
- one of the parties has all or most of the bargaining power;
- the contract was prepared by one party before any discussion started;
- a party was required to accept or reject the terms in the contract in the form they were presented
(that is, on a ‘take-it-or-leave-it’ basis);
- a party was given an opportunity to negotiate the terms.
Most contracts that are used by developers for off-the-plan sales would fall into this category
where the terms are prepared before negotiation. Also, if the negotiation is largely conducted
using unchangeable clauses with only the fundamentals like the price and subject matter changing;
the contract is most likely a standard form contract.
What is an unfair term?
A term will be unfair if the term “causes a significant imbalance in the parties’ respective rights
under the contract and is not reasonably necessary to protect the legitimate interests of the advantaged
party”. While each case may be different, some examples of unfair terms provided in
the Bill are where one party can:
- Terminate the contract but the other party cannot;
- Penalise the other for breaching or terminating a contract;
- Change the characteristics of the property sold or the terms of the contract. This would likely
include the situation where developers can change the specifications of the boundaries of the land or fixtures and fittings without discussion or compensation or potentially denying rights of the buyer to do anything about that; or
- Assign or transfer a contract to the detriment of the other party, without the other party's prior consent.
What are the consequences?
Some possible consequences in the event of contravention are:
- The unfair term will be of no legal effect and will be treated as if it never existed.
- In some cases, a party could terminate the contract.
- If a term entitling the seller to terminate is void, then the buyer could require the seller to proceed. Sellers can see the potential loss here particularly in a rising market;
- The ACCC may take action to declare a term void; and
- The Courts may make corrective orders.
When will the new laws start?
The changes will apply to “consumer contracts” entered into after the Bill becomes law, which is expected
to be early next year.
What you should do?
- Both sellers and buyers should be careful about including one sided clauses in contracts.
- Developers using standard documentation should carefully review their contracts now.
We recommend that care be taken to ensure that potentially unfair terms are reviewed
and appropriate action be taken before signing any contract
Values Decline While Taxes Rise – Beware of Land Tax
We all know about the decline in the State’s property
market. According to the State Government, the decline
has blown a hole it its taxation revenue projections
for 2009 - 2010 to the tune of $1.4 billion. This is
largely due to a sharp decline in transfer duty revenue.
So how has the Government planned to recover the
loss of revenue? The recent State Budget revealed that
Government has increased overall land tax by 29.7%
to $1.047 billion – the first time in Queensland’s history
that the land tax load has passed the billion dollar
mark.
Land tax is a tax on freehold land. For land tax purposes ‘land’ includes: vacant land, land that is built
on, lots in building unit plans, lots in group title plans,
lots in a time share scheme, and lots owned by a home
unit company.
Land tax is assessed on the taxable value of an owner's
total land holdings. The Government will add up the
value of all land that you own in Queensland at 30
June. The taxable value will be the total value of your
unimproved land (assessed as though nothing is built
on it), less any exemptions or deductions that you have
claimed. You must pay land tax if the total land tax
value of land you own in Queensland at midnight 30
June exceeds the relevant threshold. The value of
your unimproved value of land is determined by the
Government.
A resident individual may need to pay land tax if the
total relevant unimproved value of the freehold land
owned is $600,000 or more. A company, trustee
(including trustee/s of deceased estates) or an absentee
may be liable for land tax if the total relevant unimproved
value of the freehold land is $350,000 or more.
The latest analysis of interstate land tax increases over
the last 2 years by the Property Council of Australia
reveal that Queensland is the only State that increased
its land tax take by 30%. By comparison, New South
Wales and Victoria have seen an increase of 3% and
decrease of 2%, respectively. The Queensland Government
chose not to undertake revaluations – despite
the well publicised decline in the market - taking advantage
of the land taxation process to ensure that the
land tax revenue is increased.
The Government has retained the land tax surcharge
announce in December 2008 – and now plans to continue
it until at least 2013. An additional $240 million
in land tax will be collected from the property industry
in the 2009 – 2010 year.
So, while real values are decling, the land tax payable is staying high or increasing. Therefore, careful thought needs to be given on land tax
when buying or selling property. Budgeting and structural planning are essential
for savings on land tax, and your overall tax
and asset position. Should you require any further
information, please feel free to contact us.
Residential Tenancies - July 1, Changes
The “Residential Tenancies & Rooming Accommodation Act 2008” came into effect on 1 July 2009. This paper will focus on the main changes under the new Act for tenancies in units and houses, which are not for holiday purposes or less than six weeks in term.
Pre-contract stage
Landlords and agents must advertise their fixed price. Advertising a range (eg $320.00 to $350.00 a week), rent bidding or sponsoring auction style rental competition are prohibited.
Simply placing a “For rent” sign at the property is not prohibited but in this case, no bond can be taken or used by a landlord or agent. We therefore recommend that a fixed rent amount be placed under any sign.
Residential Tenancies - July 1, Changes
The “Residential Tenancies & Rooming Accommodation Act 2008” came into effect on 1 July 2009. This paper will focus on the main changes under the new Act for tenancies in units and houses, which are not for holiday purposes or less than six weeks in term.
Pre-contract stage
Landlords and agents must advertise their fixed price. Advertising a range (eg $320.00 to $350.00 a week), rent bidding or sponsoring auction style rental competition are prohibited.
Simply placing a “For rent” sign at the property is not prohibited but in this case, no bond can be taken or used by a landlord or agent. We therefore recommend that a fixed rent amount be placed under any sign.
Contract Stage
A new general tenancy agreement form (Form 18a) needs to be completed and signed by the tenant before they move in. New forms can be downloaded from www.rta.qld.gov.au/zone_files/eforms. Existing tenancies as at 1 July 2009 do not require new agreements.
The condition report must be given to the tenant before occupation, not on or after completion. We therefore recommend that the new general tenancy agreement and the signed condition report are distributed back to the tenant prior to occupation being given to the tenant. This will be along with the other requirements, such as payment of bond.
Tenancy Agreement changes
The required notice periods for ‘without ground’ terminations are:-
- notice by landlords under periodic agreements – two months (which is unchanged);
- notice by landlords under fixed term agreements - the later of two months or the end of the fixed term (which is an increase from the later of 14 days of the end of the fixed term under the previous agreements);
- notice by tenants under periodic agreements – two weeks (which is also unchanged); and
- notice by tenants under fixed term agreements – the later of 14 days or the end of the fixed term (which is also unchanged).
If there are “significant changes” between agreements for the same property, tenants can challenge those changes by application to the Small Claims Tribunal if at least one of those tenants in the earlier agreement continues as a tenant. A “significant change” that is open to challenge includes:-
- the special terms for the tenancy agreement;
- the rent amount and whether it must be paid weekly, fortnightly or monthly;
- the way rent must be paid;
- any services supplied to the rental property other than water, for which the tenant must pay;
- whether the tenant must pay for water supplied to the rental property;
- the number of occupants allowed to reside in the rental property if there is such a limit;
- whether pets are allowed; and
- any other matter prescribed under legislation from time to time.
There is a new notice period for periodic tenants when a landlord is selling a rental property. The “Notice to Leave” form must have a minimum notice period of four weeks. Again we stress this is for a periodic agreement and not a fixed agreement. Please also note the difference here to the two month period for termination ‘without ground’.
Rental increases
Under the new Act, rent can be paid by cash, cheque, direct deposit, credit card, EFTPOS or direct debit from an account. If the landlord or agent wants rent to be paid in another way, the tenant must be given a choice of at least two other ways to pay rent that are in the approved method, plus the tenant must be advised of the associated costs such as bank fees.
There is a new prohibition of increasing rent more than once every six months. This prohibition applies:-
- whether the increase is to take effect during the existing agreement or to the next agreement;
- provided at least one tenant responsible for the current rent will be responsible for the future rent; and
- regardless of whether there has been a change in the landlord since the last increase.
Landlords and agents must give two months’ notice of a rent increase to tenants whether the tenancy agreement is a fixed term or a periodic agreement. Please note however that as fixed term agreements have the rent fixed, the rent can only increase at the commencement of a new term or prior to the term if the fixed term agreement states that the rent will increase and if so, by how much. For example, if the fixed term agreement states that after the first three months rent will increase by $30.00 per week, then two months’ notice will be required notwithstanding the terms of the agreement.
Entry to Property
There are new entry requirements when selling a rental property. Landlords and agents must now also state on the required form, Form 9 “Entry Notice”, of a two hour time period during which they intend to inspect the property but that time must be a reasonable time. A reasonable time is defined not to be on a Sunday, public holiday or before 8.00am and after 6.00pm. The tenant’s agreement can be obtained to undertake the inspection outside of these times but without that agreement, the tenant may lawfully refuse entry.
Due to the implementation of ongoing privacy policies, landlords or agents are not permitted without the tenant’s consent to use a photo or other image of the rental property in any advertisement. Further, tenants can lawfully object to landlords or agents conducting on-site auctions or open houses. We therefore recommend that the tenant’s written consent be obtained to this, following proper and thorough consultation with the tenant. Written evidence of that consent would be helpful to landlords and agents.
There may be other grounds for entry, including undertaking routine repairs and carrying out maintenance. Landlords and agents need to give 14 days notice for these purposes. In addition, landlords and agents can give the required Form 11 “Notice to Remedy Breach” to ascertain whether a significant breach is remedied.
As mentioned above, this is the state of the law from 1 July 2009.
Changes to Foreign Investment rules
The Australian Federal Government’s foreign investment changes that were announced on 18 December 2008 are to be implemented from 31 March 2009. A summary of the changes is:-
Australian resorts, hotels, hostels and guesthouses (for the purpose of individual dwellings within them) are now considered to be commercial property. Foreign entities can buy commercial property without FIRB application or approval if the price for each property is less than:-
- $5 million for heritage listed properties; and
- $50 million for all other acquisitions.
For individual dwellings or lots within resorts, hotels and the like to be considered of a commercial nature, they must be used as part of a hotel, meaning they must be managed by the hotel operator and not just physically located within that hotel. If the individual dwellings are owner occupied or rented privately, those individual dwellings will still be deemed to be residential property and not commercial property. Approval for residential property in the ordinary course will still be required for those properties. If there is any doubt as to whether or not a dwelling is operated within the resort, for example if a respective purchaser is not sure at the time of acquiring the property whether they will let the property out by the hotel operator or use it themselves, that purchaser should try to obtain FIRB approval to the purchase-
Temporary residents acquiring an interest in the following kinds of property will not need to notify FIRB of the proposed purchase:-
- vacant land which is zoned to permit construction of a single residential dwelling, where there is no interest in any adjoining vacant land;
- established residential dwellings which are to be used as their principal place of residence; and
- new residential dwellings.
Student temporary residents are now also not subject to the $300,000.00 price limit and can acquire property as above regardless of value. Temporary residents will still need to apply for approval for all other acquisitions. There is a new definition of “temporary resident” which includes foreign persons living in Australia who hold a valid temporary visa that allows them to stay for a continuous period of more than 12 months (not non-residents, tourists or short term business people) or where that person has submitted an application for permanent residency and holds a bridging visa pending the finalisation of the permanent residency application.
- Developers that market to local and overseas buyers can now sell more than 50% of their stock to overseas buyers.
- There are new and updated forms for foreign persons, companies and trustees to complete. Individuals are no longer required to submit supporting documentation to acquire residential real estate.
It appears that there is a trend towards some relaxation of the foreign investment requirements particularly as it relates to residential property. The changes may create an increase in the amount of properties in Australia marketed to foreign persons, particularly new developments which focus on letting holiday residential properties in a centralised letting pool.
For more information, please contact Frank Dwyer.
DW Legal and Starts International host Meikai University of Japan
DW Legal and real estate figure Yoshi Araki of Starts International Realty in Surfers Paradise have recently hosted representatives from Meikai University of Tokyo, as part of Meikai's fact finding mission researching the second hand real estate industry. With particularly Japanese second hand property prices stagnating, the representatives learned about how the Australian market operates, in order to introduce systems designed to lift confidence in the Japanese second hand property market.
Meikai University is the only university in Japan that has a specialist unit that focuses on real estate. Meikai influences Japanese government policy and helps to introduce changes to law. Meikai hopes to use the knowledge gained on the Gold Coast to contribute to the debate about stagnating prices obtained for second hand property which represents only 10% of the residential real estate market. Meikai representative Professor Hiroko Saito said that buyers of Japanese second hand property do not normally have access to the breadth of information that Australian buyers have, such as local council building records. Therefore, the risk for buyers buying defective or non-complying properties in Japan can be higher than in Australia where this information is publicly available, which affects the prices obtained. Residential real estate usually loses most of its value over 20 years, Prof. Saito said.
Property lawyer and DW Legal director Frank Dwyer, who spoke to the group in Japanese, said the meeting gave an interesting insight into the difficulties faced by the Japanese second hand market and that lessons could be applied to the local second hand real estate market. "Buyers of second hand property need access to as much information as possible, so they can decide confidently before buying a particular property. That confidence will hopefully lead to better prices being obtained for second hand property", he said.
The group learned about the Integrated Planning Act which became law in Queensland in 1997, how the city councils were mandated to keep residential building records for the life of the building and how and why searches are undertaken by solicitors on behalf of purchasers. The outcome of the research is due to be reported to the Japanese government shortly.
The Meikai University representatives also met with delegates of the Gold Coast City Council, the Gold Coast office of the Building Services Authority, Australian Property Institute, Queensland Government, REIQ and QUT university representatives during their week long stay. DW Legal staff translated for the representatives at their meetings
Certificates of Classification
- From 23 April 2009, a Certificate of Classification must be hung or attached next to the main entrance of buildings that were completed after 1 July 1997. The main reason appears to be to notify the type of fire fighting facilities available and their location in the building.
- This applies to all buildings other than a single house or a domestic garage or carport. Therefore, this law applies to practically all commercial buildings and home units throughout Queensland.
- Certificates of Classification are available from the local council. The original document must be displayed. For those clients that will be buying commercial buildings, we recommend that the contract be conditional upon the original certificate being hung in compliance with the regulations by settlement or the original document provided at settlement.
- Penalties of up to $12,500.00 could apply for non-compliance.
