Tenancy Agreements 31 days of tips – Day 15

This is day 15 of my 31 days of tips on tenancy agreements series. To see the rest of the series click here.

About the Unfair Terms in Consumer Contracts Regulations

The Unfair Terms in Consumer Contracts Regulations 1999 (the Regulations) originally came from Europe as a directive which member countries were then required to incorporate into their legislation.

The purpose of the regulations are to protect consumers from aggressive terms and conditions created by lawyers acting for businesses. Generally the consumer will have no say in these terms and conditions, and will frequently sign them without even reading them. The Regulations, which provide that terms must be ‘fair’, are an attempt to redress the balance so consumers they are not taken advantage of in contract terms which are prepared by the business, and which they have no control over.

So, in a contract, a standard term will fail the test of fairness

“if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer”.

The House of Lords, in a case involving the regulations, have also commented that

“the requirement of significant imbalance is met if a term is so weighted in favour of the supplier as to tilt the parties rights and obligations under the contract significantly in his favour”.

It has been confirmed (and there is now case law to support this) that the regulations apply to all tenancy agreements, save possibly private agreements where a landlord lets out his own home on a non commercial basis. However it is best to assume that all tenancies will be subject to the regulations, and all tenancy agreements are now drafted on this basis.

The regulations are enforced by the Office of Fair Trading, which has issued formal guidance, most recently in 2005. This can be downloaded from the OFT web-site or a hard copy can be bought from them. Everyone involved in drafting tenancy agreements should read this guidance carefully.

The Regulations and tenancy agreements

So how do the regulation apply to tenancy agreements? In essence:

A clause will be considered unfair if it takes away a legal right a tenant would otherwise have had. For example all tenants are entitled to leave at the end of the fixed term without giving notice (this infuriates landlords, but it is, I am afraid, the law – see my blog post here) – so any contract term requiring tenants to give, say, a months notice (and pay rent in lieu if they do not), will be void.

If a clause is prohibiting something, you need to include special wording. This is considered on Day 16.

Where a clause is imposing any sort of penalty or charge on the tenant, it should provide for the charge to be (1) reasonable in amount and (2) reasonably incurred.

Clauses which are considered ‘unfair’ will be void and unenforceable. So, for example if you attempt to increase rent via a rent review clause which is void, the extra rent will not be payable, and (for example) you will not succeed in a claim for possession which is based on its non payment.

Some clauses, known as ‘core terms’ will fall outside the regulations. These are things like the amount of the rent and the address of the property.

Other instances of unfairness

It is not just the subject matter of the clause which can be unfair. If it is written in a complex and difficult style with a lot of legal jargon which ordinary people will not be able to understand, that also can be unfair. As can be printing contract terms in very small font in a pale colour which is difficult to read. Ideally all contracts which are with consumers should be written in a plan English style.

Enforcement of the Regulations

The OFT, together with local trading standards offices are the enforcement organisations.

If the OFT learn of a tenancy which includes unfair terms, it will contact the landlord or agent and ask for an undertaking that the offending terms will be changed. If the company refuses to do this, the OFT will go to the courts asking for a declaration confirming that the clauses are unfair and void and in injunciton preventing the company from using them again. This is what happened (although in the context of agency agreements with landlords) in the Foxtons case.

Alternately, it is always open to a tenant who is being sued for something by a landlord, to put in a defence claiming that the relevant tenancy agreement clause is unfair under the Regulations. I am not aware of any specific cases where this has happened, although there must be some.

If you consider that your tenancy agreement (or any other contract between a business and a consumer) contains unfair clauses, you can either report this to the Office of Fair Trading or your local Trading Standards Office.

Do you have any comments on this section? Is there anything I have missed? Have you been involved in any court claims where the tenant claimed that a term in the tenancy was void under the Regulations? Have you any interesting examples of clauses which have needed re-drafting to make them ‘fair’.

We will continue to look at how the regulations impact on tenancy agreements tomorrow.