Consumer Leases for Indefinite Periods
Consumers are granted statutory protections under the National Credit Code for not only credit contracts but also for consumer leases such as rental agreements for goods (for example cars or furniture).
The Financial Sector Reform Act 2022 (“FSR Act”) came into effect on 12 June 2023 and amended the National Consumer Credit Protection Act 2009 (“NCCP”) and the National Credit Code (“NCC”).
Amongst the changes are those relating to consumer leases for indefinite periods.
Consumer Leases
Consumer Leases are defined in the NCC as contracts for the hire of goods by a natural person or corporation under which that person or corporation does not have a right or obligation to purchase the goods.[1]
Prior to the FSR Act, the NCC regulated consumer leases unless they were 4 months or less, for an indefinite period, goods hired by an employee in connection with the employee’s remuneration, or leases excluded by regulation or ASIC.
Following the FSR Act, indefinite period consumer leases must now be regulated if:
“s171(1A)
(a) the lessor is a constitutional corporation at the time that the lease is entered into; or
(b) the lease was entered into in the course of constitutional trade and commerce; or
(c) the lease was entered into using postal, telegraphic, telephonic or other like services (within the meaning of paragraph 51(v) of the Constitution)”[2]
A constitutional corporation is defined in the NCC as a corporation to which paragraph 51(xx) of the Constitution applies, that being foreign corporations and trading, or financial corporations formed within the limits of the Commonwealth.[3] Discussion on trading and financial corporations in this context has been long discussed in the courts and there are a number of factors courts will look at. Generally, trading corporations are those that provide for reward, goods or services.[4]
Constitutional trade and commerce include trade and commerce between Australia and outside, between the States or between a state and territory.[5] Trade and commerce has been interpreted broadly by the courts and includes the sale of goods and services.
The amendments also forbid a landlord from entering a consumer lease for an indefinite period unless the lessor is a constitutional corporation which limits any potential workarounds.[6] Effectively, this means that most consumer leases for an indefinite period will now require regulation.
Further Amendments to the NCC
Further changes imposed by the FSR Act include allowing consumers to end consumer leases for an indefinite period at any time by returning the goods hired, heightened disclosure requirements including the requirement for landlords to disclose the base price of goods, the difference between the base price and the total amount charged by the lessor and any other information required by regulation[7] as well as caps being imposed on the amount that lessors can charge.
Summary
In summary, most consumer leases for indefinite periods, following the recent changes instigated by the FSR Act, will require regulation under the NCC.
We note the abovementioned amendments or regulation requirements are not exhaustive. For extensive advice on the matter or if you require advice or assistance in relation to your business and its contracts, contact the experienced team at Miller Sockhill Lawyers on 07 5444 4750 and one of our friendly team members can answer any questions you might have.
The content of this article is current at the date of publishing and is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Natalie Cox, 15th November 2023
[1] National Consumer Credit Protection Act 2009 (Cth) Schedule 1 National Credit Code s169
[2] National Consumer Credit Protection Act 2009 (Cth) Schedule 1 National Credit Code s171(1A)
[3] Commonwealth of Australia Constitution Act (Cth) s51(xx).
[4] Re Ku-Ring-Gai Co-operative Building Society (No 12) Ltd [1978] FCA 50 (18 December 1978), [(1978) 36 FLR 134, at p. 139]
[5] National Consumer Credit Protection Act 2009 (Cth) s5
[6] National Consumer Credit Protection Act 2009 (Cth) Schedule 1 National Credit Code s179VC
[7] National Consumer Credit Protection Act 2009 (Cth) Schedule 1 National Credit Code s174(1A)