The real estate industry will very soon have a new set of hurdles to jump . The Australian Consumer Law (TACL) which voids unfair terms in “standard contracts” will start on July 1.

The objective is to outlaw “unfair terms” in all “standard form consumer contracts”, not just real estate.

In real estate, the new act will have a significant impact on developer off-the-plan residential sales and in leases because these are most often prepared in the developer’s/landlord’s standard form with little opportunity for buyers/lessees to persuade the opposite party to alter core terms.

To use a recent case example, a provision that prevents a buyer from terminating where the floor area of the as constructed apartment balcony was 15% less than shown in the contract drawings, would be potentially “unfair” and therefore struck out.

Similarly, a provision that requires a buyer to re-apply for finance with the seller’s financier after their own application is declined, might be caught. And clauses that allow developers to unilaterally extend a “sunset date” for completion of a project are likely to be scrutinized.

But even many clauses that have been widely used by conveyancers for decades – and are contained in both ADL and REIQ standard forms – will be open to challenge.

For example, what do you think about the following standard real estate clauses? Are they “one-sided”:

only allowing a buyer to claim compensation for a defect, if the claim is made before settlement;
preventing a buyer terminating or claiming compensation if the property is adversely affected by certain things;
specifying that a buyer is deemed satisfied eg with building and pest inspections if it does not notify to the contrary?

These are all likely to be open to question under the new law.

In leases, provisions that specify the lease document contains the “entire agreement” and negatives any prior representations will likely to be subject to scrutiny. Likewise, leases that load pages of obligations on to the lessee but have only minor reference to the obligations of the landlord.

Forthcoming eNews editions will keep you informed of developments in the introduction of the new law.

The new laws are expected to have full effect from 1 January 2011 and will apply only to “consumer” contracts, i.e. for items ordinarily acquired for domestic or household use.

They have the potential to cause at least as much disputation as does the current incarnation of PAMDA. All precedent contracts for the sale of residential property will need to be carefully examined to minimise the consequences of offending clauses being struck out. Developer and agency staff will require coaching on the implementation of new documents and processes.