Legal

are YoUr StaNdard hire termS fair?

by andrew Skinner of Auckland law firm Martelli McKegg

on 16 august 2021 changes were passed to the Fair trading act 1986 (act), which will extend the existing protections against unfair contract terms in standard consumer contracts to also apply to small trade contracts.

thIS chanGE WILL be relevant for all hire companies who engage with other businesses on their standard rental terms and conditions. This article examines the background to the law and explains why it will be important for all hire companies to review the standard terms prior to the new law coming into effect in August 2022.

backGroUnD to EXtEnDInG thE UnFaIr contract tErM rEGIME

The unfair contract term regime came into force in 2015 and the purpose of the regime was to provide protections to consumers when entering into standard form contracts by prohibiting unfair contract terms. Since then, questions have been raised about whether this regime will extend to business contracts as the existing legislation had significant gaps in the protections for small businesses against unfair contract terms. In order to alleviate the negative impacts for individual businesses as well as broader economic impacts such as lower levels of competition, innovation and productivity, the regime has now been extended to include business contracts with effect from August 2022.

DEtErMInInG WhEthEr thE UnFaIr contract tErM proVISIonS appLY

There are certain prerequisites that need to met before the unfair contract terms provisions will apply to business contracts. First, the contract must be a standard form contract. Secondly, the contract must be characterised as a small trade contract. Are hire contracts considered Standard Form Contracts? A number of factors must be considered before deciding whether a contract is a standard form contract. These include: • whether one party has most or all of the bargaining power • whether the contract was prepared prior to any contractual discussions • the extent to which parties are able to negotiate terms; or • whether the contract is presented as part of a “take it or leave it” situation. Having regard to these factors, it seems fairly clear that many contracts for the hire and rental of goods will be considered standard form contracts. The contracts are often prepared by the rental company with little negotiation between the parties. To the extent that a hire company rents goods to a consumer, the unfair contract term regime will already apply. The next question becomes, what business customers will now be covered by the regime?

SMaLL traDE contractS

Having decided that your terms qualify as a standard form contract, the unfair contract terms regime will apply to consumers and certain business customers if it is also a “small trade contract”. A small trade contract is where: • the parties are engaged in trade; • it is not a consumer contract; and • it does not comprise or form part of a trading relationship that exceeds an annual value threshold of $250,000 (to be assessed when the relationship first arises). So the new regime will apply to many contracts with businesses in the hire industry if the trading relationship is valued at less than $250,000 per year. As you can see from these factors, it doesn’t matter how big the customer is but rather the likely annual sales revenue. By way of example, if you rented some perimeter fencing to a large construction company for 6 months for $50,000, the regime would apply.

What IS an “UnFaIr contract tErM”?

A term in standard terms will be considered unfair if it: • would cause significant imbalance in the contractual parties’ right and obligations arising under the contract; • is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and • would cause detriment to a party if it were applied, enforced or relied on. It is worth noting that certain key terms which describe the subject matter of the contract, set the upfront price payable under the contract, or are required or expressly permitted

by law cannot be considered unfair under the Act. The Act outlines some examples of terms included in contracts that may be considered unfair. Generally speaking, terms that permit one party (but not another) to vary, renew, avoid liability or terminate the contract may be considered unfair. In a lease agreement between a lessor and a small business, an unfair term may arise when dealing with the obligations surrounding defective goods. A term may provide that the lessor is not responsible for any inherent faults with the goods, but the small business must continue to make payments until the end of the lease term, regardless of whether the goods operate as intended. This is likely to be unfair due to creating an imbalance between the parties’ rights while also causing detriment to the small business. An unfair term can also appear when one party has the ability to unilaterally vary the contract. For example, a term may permit the hirer of goods to unilaterally change the price of goods if they give the customer ten days’ notice in writing. However, if the contract does not give the customer a reasonable opportunity to either resist the price increase or exit the contract without a penalty then this would be considered unfair.

What ShoULD I Do noW?

If a customer complains that a term in your contract is unfair then you need to take the complaint seriously. The customer could complain to the Commerce Commission and the onus will be on you to prove that the term is fair and protects your legitimate interests. You will incur considerable legal and management time dealing with the Commerce Commission. If the Commerce Commission disagrees with you, the Commission can apply to the Court for a declaration that the term is unfair (which may cause significant reputational damage for your business). If a Court declares that a term is unfair, it is an offence for any person to include, apply, enforce or rely on the declared term in a small trade contract. The offence is punishable by a fine of up to $200,000 for an individual or up to $600,000 for a body corporate. In order to feel confident that your terms cannot be challenged by an unhappy customer, businesses should review their standard terms now to ensure that they do not include any unfair contract terms before the regime is extended to business customers in August 2022. ■

Andrew Skinner has over 20 years of experience as a commercial lawyer and is a partner in the Auckland firm Martelli McKegg. Andrew’s phone number is (09) 300 7622 and his e-mail address is andrew.skinner@martellimckegg.co.nz. This article is not intended to be relied upon as legal advice.

Youngman richardson opens mt wellington branch

YoUnGMan rIcharDSon recently opened a new branch in Mt. Wellington, Auckland. The building, situated at 20L Sylvia Park Road, is easily accessed from the Mt Wellington on and off-ramps on Auckland’s Southern motorway and opened on the 01 December 2021. “The decision to open a branch in a South Auckland location is a direct result of feedback from our existing customers,” says Ed Richardson, YR’s Managing Director. “This will give our customers who operate in Auckland’s Southern Region better access to products and service capabilities.” The new location has a large showroom which will display a variety of construction equipment including mini-excavators, access equipment, pumps, water blasters, generators, concrete equipment & tools as well as the latest in surface preparation. There will also be ability to service light construction equipment. The Mt. Wellington branch will also have a meeting room and facilities for YR representatives to hot-desk. “We have been wanting to increase our exposure in the Southern Auckland region for some time,” says Ed. “This will now mean our sales representatives in the region will have a convenient base from which to increase our sales presence.” ■

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