A New Era for Strata Contracts: Unfair Terms Now Banned in NSW

A New Era for Strata Contracts: Unfair Terms Now Banned in NSW

What if I told you that a single clause in your strata contract, one you’ve relied on for years, could now be void?

From 1 July 2025, unfair contract terms in NSW strata agreements are no longer just bad practice, they’re unlawful.

For the first time, owners corporations and community associations will be explicitly protected by the unfair contract terms provisions of the Australian Consumer Law (ACL) when entering into certain standard form contracts, such as:

• strata management agreements
• building and facilities management contracts
• cleaning, gardening, and other service arrangements
• the sale or grant of an interest in land

That means any one-sided clauses that tip the balance unfairly will not only be unenforceable but could also attract significant penalties.

Why Now?

The reforms were introduced through the Strata Schemes Legislation Amendment Act 2025 following recommendations from the 2021 review of the Strata Schemes Management Act 2015 (NSW).

This particular change is effected by an amendment to the Fair Trading Act 1987. Under the new section 32A, the unfair contract terms provisions apply to contracts entered into by owners corporations and community associations.

For years, individuals and small businesses have had protection against unfair terms in standard contracts. Owners corporations, despite entering major long-term contracts, fell through the cracks, as the unfair contract terms provisions have only been applicable to “consumer contracts” and “small business contracts”, neither of which cover contracts involving an owners corporation. These changes close that gap and bring much-needed fairness and accountability to strata dealings.

What Counts as “Unfair”?

Under section 24 of the ACL, a term is unfair if it:

1. creates a significant imbalance in rights and obligations;
2. isn’t reasonably necessary to protect the other party’s legitimate interests; and
3. causes (or could cause) financial or other detriment if relied upon.

Importantly, even the potential for harm is enough.

Here are some real-world examples that may no longer survive scrutiny:

• One-sided exits: A strata manager can terminate at any time without penalty, but the owners corporation must give three months’ notice and pay fees.
• Heavy termination penalties: Owners corporations face large exit fees, while poor performance by the contractor has no consequences.
• No accountability: Building managers disclaim responsibility for subcontractors they’ve hired.
• Assignment without consent: The manager transfers the contract to another company without informing the owners corporation.

What Happens If a Term Is Unfair?

If a court or tribunal finds a clause unfair, it’s void.as if it was never there. The rest of the contract may still stand, but parties relying on unfair terms risk:

• having contracts varied or struck out;
• injunctions, damages, or compensation orders; and/or
• for the first time, serious financial penalties.

Why This Matters Beyond NSW

While the changes apply only in NSW, their ripple effects could be national.

Victoria has already given VCAT power to rule on fairness of strata contract terms, and other jurisdictions may follow NSW’s lead. For contractors and managers operating across states, the practical response will likely be to standardise contracts in line with NSW’s new rules.

So, even if you’re outside NSW, the question is worth asking: are our contracts fair enough to withstand scrutiny if these laws arrive here?

Key takeaway: From 1 July 2025, strata contracts in NSW must meet the same fairness standards as consumer contracts. Now is the time for owners corporations to review agreements, and for service providers to get ahead of the change.

If you are an owner or a stakeholder in an NSW strata scheme, there have been significant changes in the legislation that may affect your strata living. For more information on the changes brought by Strata Schemes Legislation Amendment Act 2025, visit this article on our website: Strata Schemes Legislation Amendment Act 2005 (NSW) commences in 2025 to introduce further strata reform (https://bagl.com.au/strata-schemes-legislation-amendment-act-2025/)

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This article was first published on 26 August 2025. It was written by Julia Moroz, Special Counsel in Melbourne, Coco Chen, Solicitor in NSW.

© Bugden Allen Group Legal Pty Ltd. This is general information only and not legal advice. You should not rely on this information without seeking legal advice tailored to your specific circumstances.