While standard form contracts can save time, using them without considering the unique circumstances of each agreement can be risky. This article contains a general discussion of the importance of written contracts, and the need for Cabinet Makers Association (CMA) members to ensure that their standard form contracts do not contain unfair terms.
The need for a written contract
The Home Building Contracts Act 1991 (Act) provides that a written contract between a builder and homeowner must be entered into for any home building or associated work valued between $7,500 and $500,000. Cabinet makers are treated as builders for the purposes of the Act.
Even though it is not required by the Act, we highly recommend that written contracts be entered into for work valued under $7,500. It is much easier to recover unpaid money when you have a written agreement to rely on. It is also essential to ensure that the terms of the written contract accurately reflect the agreement between the parties.
However, care must be taken about the terms of a written contract, particularly because of the statutory requirement prohibiting unfair contract terms.
Unfair contract terms
The Act provides that a builder must not enter into a home building contract containing any provision that is unconscionable, harsh or oppressive (unfair). In deciding whether a provision is unfair, some of the relevant considerations are:
- the relative strengths of the bargaining positions of the builder and the owner;
- whether the owner was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the builder;
- whether the owner was able to understand the contract; and
- whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the owner by the builder.
Looking at the factors above, it is clear that the individual circumstances of the homeowner are relevant in determining whether a provision in a contract is unfair. It follows that a standard form contract may not be appropriate in all situations. A homeowner who enters into a contract containing an unfair provision may be entitled to compensation from the builder.
Prevention is better than cure
The Act permits a form of contract to be submitted to the Building Commissioner for an opinion as to whether any provision is unconscionable, harsh or oppressive. If you are unsure about any of the provisions in your standard form contract, we highly recommend that you seek guidance from the Building Commissioner, or get independent legal advice.
The Australian Consumer Law
Using a standard form contract also has implications under the Australian Consumer Law (Consumer Law). The Consumer Law is very similar to the unfair contract provisions in the Act. It provides that unfair terms in standard form contracts for the provision of consumer services are void. A term of a consumer contract is unfair if:
- it would cause significant imbalance in the parties’ rights and obligations arising under the contract; and
- it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
- it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
Relevant matters for consideration include the extent to which the term is transparent, and the contract as a whole. If a homeowner asks the court for a declaration that a term in the standard contract is unfair, it is up to the builder to prove that the term is reasonably necessary to protect its legitimate interests. Unfair terms are void and the contract will continue to bind the parties if it is capable of operating without the unfair term.
Whether or not you are using a standard form contract, it is important that you get the terms of a written contract right from the beginning, and ensure that it does not contain any unfair terms. These steps are essential to avoid disputes later down the track. We highly recommend seeking legal advice early as a preventative measure against future litigation.