Star Ratings System scrapped – What does this mean for your agreements?

24 May 2017

From 30 June 2017, an accommodation scheme which has received an official accreditation from Star Ratings Australia will no longer be recognised. The ratings system, which is owned by Motoring Clubs Australia, has decided to retire the star ratings brand due to the ever-changing digital world where consumers are now more reliant on online websites where guests rate their stay and leave detailed reviews about their experience.

As a result, the system has become somewhat irrelevant and increasingly unsustainable citing a subscription of 15,000 star rated properties from its inception, to now, where those subscriptions have fallen below 4,000.

Many management agreements and motel leases contain certain provisions binding the manager or tenant to the star ratings system and oblige them to maintain the scheme to a certain star rating level. This leaves many unanswered questions from a manager’s or tenant’s perspective. Does this mean the agreement is now void? Is some other standard adopted? Is a star rating such a well-known concept that despite the motoring clubs no longer maintaining the ratings system it is still a practical and recognised reference?

To answer these questions we must turn to the legal principles that assist in interpreting agreements where there are ambiguities or references to legislation or standards that no longer exist. Even though we can utilise these principles, each agreement should be interpreted according to its terms and the precise obligations on the manager or tenant.

The starting point is that a court will generally go out of its way to uphold the validity of such an agreement. Only where compliance with the exact specified standard, and no other, is fundamental to the agreement would a court be likely to find that as the standard no longer exists, the agreement is void. On that basis it is extremely unlikely that a court would ever find an agreement void because the star rating system no longer exists.

Equally a court would not find that because the star rating no longer exists the manager or tenant is relieved from any obligations that refer to such a rating.

The court will look to uphold the ascertainable intentions of the parties. It will look at the whole of the agreement to ascertain those intentions in such circumstances. The court will ascertain what was reasonably expected by the parties at the time the agreement was entered into.

A court is likely to find that the parties intended that there be compliance with an overall standard comparable to the particular star rating. Because the concept of a particular star rating is so well understood, a court would likely find that the reference in the agreement to the particular star rating or standard will be taken as a reference to the commonly held understanding of what that standard is.

It should also be remembered that the system itself is a relative concept. A complex given a particular rating 10 years ago might not have the same rating now or in 10 years’ time or the complex itself may undergo changes which could alter the rating in some way. All of those factors would need to be taken into account when determining the exact obligations of the manager or tenant.

If you do manage or lease a complex where you are obliged to maintain it to a particular star rating, you should bear the above principles in mind. It would be opportune to consult your lawyer to see if any changes to your management rights agreements or lease are advisable to prevent any disputation.