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Posted 22 November 2024
Category: Strata
During the construction phase of a building, a supplier of utilities and services (Network Provider) may reach out to the Developer with an offer to enter into an agreement for the installation of equipment and/or infrastructure for the supply of these utilities and services (known as an Embedded Network).
An Embedded Network can facilitate a wide range of utilities and services, such as electricity, solar, heating, gas, air conditioning, potable water, hot water, telephone, internet access, storm water or waste removal.
In the strata context, Developers will typically benefit from such an agreement with the Network Provider as the equipment and/or infrastructure will be installed at no cost to them on the condition that the Owners Corporation enter into an Embedded Network Contract (for the supply of those utilities and services) at the first AGM of the scheme – and in doing so, take on the associated costs.
Note that an Embedded Network Contract is separate to any agreement which may have been entered into between the Developer and Network Provider.
The initial concern with Embedded Network Contracts is that they are ordinarily submitted to an owners corporation by the Developer at time when the lot owners are disadvantaged by:
Of further concern, Embedded Network Contracts often contain clauses which may:
Each of these items is discussed below.
As above, the ordinary exception to the vesting in the owners corporation is where any part is subject to a lease that “is necessary for the purpose of providing a service to the scheme”, though in our experience, such lease is rarely present.
What this means is that, in the absence of a lease entered into between the Developer and Network Provider before the registration of the scheme over the equipment and/or infrastructure, those items become the property of the owners corporation upon such registration.
Note however this does not extend to or capture ‘floating’ equipment (i.e. equipment not physically affixed to the building), which would remain the property of the Network Provider.
Notwithstanding the above, Network Providers will typically represent that the equipment or infrastructure is owned by them and impose a ‘buyout’ fee, as below.
The relevant provisions often look similar to the following:
EXAMPLE
|
YEAR | EQUIPMENT PRICE |
1 | $300,000 |
2 | $280,000 |
3 | $260,000 |
4 | $240,000 |
5 | $220,000 |
6 | $200,000 |
7 | $180,000 |
8 | $160,000 |
9 | $140,000 |
10 | $120,000 |
Further, to the extent that the ‘buyout’ provision can, by virtue of its character and the context, comprise a ‘penalty’, such provision will ordinarily be unenforceable or void.
3. Contract provisions which are ‘harsh, unconscionable or oppressive’ are likely to comprise ‘unfair contract terms’ as defined under the Australian Consumer Law. This legislation was recently the subject of reforms that commenced on 9 November 2023 and extended its application to standard form contracts made or renewed after that date, includes contracts made with small businesses, and introduces a pecuniary penalty regime for the inclusion of such terms.
In light of this, businesses should review their contracts to remove or amend any unfair terms, and owners corporations should be on the lookout for any such terms in new or renewed Contracts.
An owners corporation facing its first AGM at which an Embedded Network Contract is to be considered, or otherwise finding itself in the scenario where an Embedded Network Contract is already in place may be concerned as to the effect of such a Contract and its terms, and whether they have other options available.
Fortunately, those owners corporations may well have options, and would suggest at first instance they seek legal advice as to whether any of the following may assist:
We have considerable experience with these issues and can assist if you are having difficulties with them!
Prepared by Bannermans Lawyers
22 November 2024