Introduction

As of 1 July 2025, significant changes to strata laws in NSW provide new protections for every owners corporation against unfair contract terms. This major strata reform addresses a critical gap, extending the unfair terms provisions of the Australian Consumer Law (ACL) to cover standard form strata agreements for the first time.

For any strata committee, understanding these new rules is crucial for ensuring their agreements are both compliant and fair. This guide provides essential information on the strata law changes, helping your owners corporation navigate these important new contract protections and manage your responsibilities effectively.

Understanding the New Unfair Contract Term Protections for Strata Schemes

The Key Strata Law Changes Starting 1 July 2025

From 1 July 2025, every NSW owners corporation will benefit from significant strata law reforms. Notably, these reforms extend the ACL’s ban on unfair contract terms to strata schemes—a protection previously unavailable.

For years, owners corporations were not classified as “consumers” or “small businesses” under the law. Consequently, they were left vulnerable in standard agreements. This important reform was enacted through an amendment to the Fair Trading Act 1987 (NSW), closing a significant gap in consumer protection.

Under the amendment, an owners corporation is now shielded from one-sided or disadvantageous clauses in its agreements. As a result, these changes bring much-needed fairness and accountability to strata dealings across NSW.

Which Strata Agreements Do the New Rules Affect?

The new rules on unfair terms apply to standard form contracts for the supply of goods, services, or land to an owners corporation. They are designed to cover the typical agreements that strata schemes regularly enter into.

These contract protections impact a wide range of common strata agreements, including:

• Strata Management Agency Agreements
• Building Management and Facilities Services Agreements
• Concierge, Cleaning, and Gardening Agreements
• General Services Agreements
• Building Contract and Consultancy Agreements
• Contracts for the sale or grant of an interest in land

It is important for a strata committee to understand that these changes are not retrospective. The protections apply only to contracts entered into on or after 1 July 2025. Existing strata agreements will be affected only if they are renewed or if a specific contract term is varied on or after this date.

Identifying an Unfair Term in Your Strata Contract

The Three Legal Tests for an Unfair Term

Under section 24 of the ACL, a contract term is legally defined as unfair if it satisfies three specific tests. For a term in your strata agreement to be voided, it must meet all of these criteria. The new rules for NSW strata schemes make it crucial for an owners corporation to understand this legal standard.

The three essential conditions for a term to be considered unfair are:

Legal Test	Description
It causes a significant imbalance	The term must create a substantial disparity in the rights and obligations between the parties under the contract, heavily favouring one side over the other.
It is not reasonably necessary	The term is not required to protect the legitimate interests of the party who benefits from it. The onus is on the advantaged party to prove the term is necessary.
It would cause detriment	The term would cause harm (financial or otherwise) to the owners corporation if applied or relied upon. The potential for detriment is sufficient to meet this test.

How Courts Determine if a Term Is Unfair

When a court or tribunal, such as the NSW Civil and Administrative Tribunal (NCAT), assesses whether a contract term is unfair, it must consider several factors beyond the three main tests. This ensures a comprehensive evaluation of the term’s impact on the strata agreement.

Two key considerations in this assessment are the transparency of the term and the context of the contract as a whole. A court will examine the extent to which the term is transparent, meaning the clause is:

• Expressed in reasonably plain language
• Legible and presented clearly
• Readily available to any party affected by it

However, it’s worth noting that a term can still be legally unfair even if it is written clearly and is easy to understand.

The court also evaluates the specific term within the context of the entire contract, rather than in isolation, to understand its overall effect on the agreement.

Common Examples of Unfair Terms in Strata Agreements

One-Sided Termination & Penalty Clauses

Many strata agreements have historically contained terms that heavily favour the service provider when it comes to ending the contract. The new strata law changes specifically target these clauses, which create a significant imbalance in the rights and obligations of the parties.

An owners corporation should be cautious of any contract term that gives one party more power than the other in termination situations, which often involves the relationship between an owners corporation vs strata management. Under the new protections, the following types of clauses are likely to be considered unfair terms:

Category	Example of a Potentially Unfair Term
Unequal Termination Rights	A term permitting a strata manager to terminate an agreement at any time without penalty but requiring the owners corporation to provide a lengthy notice period or pay substantial fees.
Unfair Penalties	A clause imposing a heavy penalty or large exit fee on the owners corporation for terminating the agreement, even for poor performance, while the contractor faces no consequences for a breach.
Disclaiming Responsibility	A term where a building or strata manager disclaims all responsibility for the work performed by subcontractors they have hired.
Capping Liability	A clause limiting an agent’s liability to a specific amount in cases of negligence or misconduct, unless the agreement is covered by an approved professional standards scheme.
Shifting Insurance Costs	A contract term that requires an owners corporation to pay for the agent’s professional indemnity insurance excess.
Unilateral Variation	A term allowing one party, typically the service provider, to vary the terms of the strata agreement without needing the consent of the owners corporation.
Assignment Without Consent	A clause permitting a manager to transfer or assign the contract to another company without informing or seeking approval from the owners corporation.

The Consequences of an Unfair Contract Term for Your Strata Scheme

Voiding the Unfair Term from the Contract

When a court or tribunal determines that a contract term in a strata agreement is unfair, that specific clause is declared void. This means the term is treated as if it never existed and is not legally binding on the owners corporation.

The new strata law changes ensure that the rest of the contract can often continue to operate without the voided term. This allows the agreement to remain in effect, providing stability while removing the disadvantageous clause.

Potential Penalties & Other Legal Actions

The party that includes or attempts to rely on an unfair contract term faces more than just having the clause voided. The strata reform introduces significant legal risks for non-compliance with these new rules.

Under the ACL, a court or tribunal can impose a range of other orders against the party at fault. These potential legal actions serve as a strong deterrent and offer further protection for an owners corporation.

Consequences may include:

Consequence	Explanation
Serious Financial Penalties	For the first time, significant financial penalties can be issued against a party that proposes or relies on unfair terms in their strata agreements.
Varying or Voiding the Contract	A court has the power to vary certain terms of the contract or, in some cases, declare the entire agreement void.
Injunctions	An order can be made to prevent a party from engaging in specific conduct, such as enforcing an unfair term.
Damages and Compensation	The court may order the party who relied on the unfair term to pay damages or provide compensation to the owners corporation for any loss suffered.

Practical Steps for Your Strata Committee & Owners Corporation

Auditing Your Existing Strata Agreements

To proactively safeguard your strata scheme, every strata committee and its managers should review all current standard form contracts. This audit helps identify any potentially one-sided or high-risk clauses before agreements come up for renewal or variation.

Since the new rules apply to contracts renewed or varied on or after 1 July 2025, this review process is critical. As part of the audit, the owners corporation should pay close attention to:

• clauses that limit a service provider’s liability
• terms that create an imbalance in the rights and obligations of the parties

Seeking Legal Advice Before Renewing or Varying Contracts

Obtaining professional legal guidance is essential to ensure your strata scheme is protected under the new laws. Legal advice can confirm that any new, renewed or varied strata agreements:

• comply with the updated strata regulations
• safeguard the interests of the owners corporation
• avoid potential unfair contract terms that could be voided or attract penalties

Strata managers and committees should therefore seek legal advice before entering into any new agreements or making changes to existing ones.

Conclusion

The significant strata law changes in NSW, effective 1 July 2025, provide every owners corporation with crucial new protections against unfair contract terms in their strata agreements. This guide has outlined how the strata reform empowers your strata committee to identify and address unfair terms, which can now be declared void and lead to serious penalties.

To ensure your strata agreements are compliant with these new rules, it is vital to seek professional legal advice. Contact the expert team at PBL Law Group, our strata law firm, today for trusted guidance on navigating the changes to strata laws and safeguarding your owners corporation’s interests.

Frequently Asked Questions