The Australian Consumer Law (ACL) commenced on 1 July 2010. The ACL contains a prohibition against unfair contract terms in standard form consumer contracts. The three key elements of the unfair contract terms provisions are:

An off the plan contract for the purchase of land will be a consumer contact if it is to an individual (and not a company or trust) who acquires it wholly or predominantly for their personal, domestic or household use or consumption.

Therefore, the purpose for which the contract was entered into must be taken into account. If the contract is for the purchase of a property to be used as a residence, the contract will be a consumer contract. Where the property is purchased for investment purposes, the contract will not be a consumer contract.

A contract will be presumed to be a standard form contract unless proved otherwise. In determining whether a contract is a standard form consumer contract, the following matters are relevant:

A key indicator of whether an off the plan contract will be regarded as a standard form contract is the relative bargaining power of the purchaser and vendor and the degree of negotiation of the contractual terms. Where an off the plan contract is prepared by the vendor's solicitors and is presented on a take it or leave it basis, or is subject to little or no negotiation, it is more likely to be regarded as a standard form contract. However, where an off the plan contract is negotiated at arm's length by parties with similar bargaining power, it is less likely to be regarded as a standard form contract. This may even be the case where the contract incorporates general conditions (as is common in off the plan contracts).

The fact that a contract is a pro forma or is in a standard form will not, of itself, make the contract a standard form contract. The position of the parties and the extent of any negotiation must be considered.

Given that most off the plan contracts are drafted to give the developer flexibility in designing and constructing the building, and developers will not normally agree to significant changes, off the plan contracts to individuals in most instances are likely to be considered standard form contracts.

A term will be unfair if it:

To determine whether a term is unfair, the courts need to take into account:

Terms which penalise one party for breach or termination or limit one party's rights (for example, rights to sue or rights to adduce evidence) may also be unfair.

Developers need to be careful that they do not enter into one-sided contracts. They will need to be seen to have fair contracts that protect the interests of purchasers, while balancing the need to preserve flexibility in developing the project.

A number of usual clauses in off the plan contracts, which allow flexibility in developing a site, may infringe the restriction on unfair terms. For example:

Developers need to be careful that including such clauses does not create a significant imbalance in the parties' rights and obligations, that the clauses are reasonably necessary to protect the developer's interests, and that they do not cause detriment to the purchaser if a term was relied upon. Where these types of clauses are to be included, developers should include provisions to support inclusion of such clauses (such as a financier's requirements or changing council requirements).

When banking a developer, financiers must be live to these issues. Any off the plan contracts forming part of the financier's take-out should be reviewed to ensure compliance with the ACL.

A term in a consumer contract which is unfair will be void. However, the relevant contract will continue, if it is capable of operating without the unfair term. The regulator or any other party (including, for example, affected purchasers) may apply to the court to have a term declared an unfair term.

The ACL applies to standard form consumer contracts made on or after 1 July 2010. It only applies to existing contracts if they are varied after the commencement date.

Given that a disclosure statement required to be given to a purchaser will form part of a contract, this may mean that where a developer gives a further disclosure statement to a purchaser after 1 July 2010, the ACL will apply to the contract, even though the contract was entered into before the ACL commenced. Therefore, developers must carefully consider the effect of amending contracts entered into before 1 July 2010 after this date, or issuing a further disclosure statement for those contracts.

For new developments, off the plan contracts should be reviewed from a legal perspective to ensure that terms are not unfair within the meaning of the ACL. Financiers should require such a review as a condition precedent to funding.

Developers should consider implementing, and financiers should consider requiring, procedures to ensure that purchasers have the opportunity to negotiate the terms of their off the plan contracts to decrease the likelihood that it will be regarded as a standard form contract for the purposes of the ACL.

For ongoing developments, where off the plan contracts entered into prior to 1 July 2010 are to be varied, the application of the ACL to the amended contract should be carefully considered prior to the variation taking place.