New case on unfair terms in tenancy agreements

New cases on the unfair terms regulations are quite rare – those from the European Court even more so. So its very interesting to have a European decision.

Brusse and Garabito v Jahani Ltd [2013] EUECJ C-488/11

30 May 2013

This is a case from the Netherlands.  It concerns a residential tenancy where the tenants believed that the penalty clauses for unpaid rent were unfair as they did not reflect the actual loss to the landlords.

The case was referred to the European Court on the interpretation of the regulations.  Despite being Dutch, this case is binding on us as it is on the general interpretation of the regulations, which apply to all countries subject to the EEC law.

The case clarifies a number of points as follows:

When the regulations apply

The unfair terms regulations will apply

to a residential tenancy agreement concluded between a landlord acting for purposes relating to his trade, business or profession and a tenant acting for purposes which do not relate to his trade, business or profession

This begs the question, what about lets where the landlord is not a professional landlord?

Probably an agreement made between someone renting their house out while they work abroad for a year (for example) will be exempt, although the general view is that this will not be the case if they are using a letting agent and the agents’ standard tenancy agreement is used.

The duty of the court

The court has a duty to consider any contract terms which are in dispute ‘of its own motion’ (which means that it must do it anyway, not just if the point is raised by one of the parties) and annul any terms which it thinks are unfair.

This is just the terms of the contact which are ‘in dispute’ however – they don’t have to go through the whole tenancy agreement looking for unfair terms.

Penalty clauses

The final question was about whether a national court can change the penalty under a tenancy agreement to make it fair.

The decision was that, no, it can’t do this.  It must annul the clause altogether.

So if you have an ‘unfair’ penalty clause, and this is the subject of court proceedings (perhaps if you are suing your tenant for rent arrears plus the penalty), a court must consider whether this clause is fair or not.

If the court decides it is not fair, then it will be as if the clause was not there and you will not be able to claim under it.

If you have penalty clauses in your tenancy agreement therefore, you may want to take a look at them and amend them if they could be considered unfair.

Thanks to Garden Court Chambers Housing law bulletin for alerting me to this case.  You can read the full decision on BAILII here.