Unfair Terms in Tenancy Agreements - page 1

Contents

Page 2

  • Particular clauses in tenancy agreements
  • Time to consider
  • In conclusion


Introduction

Everybody knows that legal documents are confusing. Even lawyers find them difficult to understand sometimes.

Standard terms and conditions are even more confusing. Written in small type, often in printed in a pale colour, very difficult to read, and using long words and ponderous phrases, it is not surprising that very few people read them.colour, very difficult to read, and using long words and ponderous phrases, it is not surprising that very few people read them.

It is also not surprising that, drafted as they are by the supplier's lawyers, they have in the past generally tended to undermine the position of the consumer.

However things should be getting better now, due to the Unfair Terms in Consumer Contract 1999. These regulations (based on an EEC Directive), were introduced, initially in 1995, to help consumers by outlawing unfair and incomprehensible contract terms. They are now incorporated into the Consumer Rights Act 2015

This article takes a look at these regulations, and the effect that they have on standard tenancy agreements.

The Regulations

The regulations are aimed at contracts made between businesses and consumers, and contracts which are drafted in advance and presented to the consumer to sign, rather than contracts which are agreed after terms have been individually negotiated.

The Regulations apply to standard terms (i.e. those that have not been individually agreed with the consumer) by applying a test of fairness. If any of the standard terms fail this test, then they will not be enforceable against the consumer.

The regulations however do not apply to what are called core terms. These are terms which set the price or describe the subject matter of the contract. In a tenancy agreement this would include the rent and the description of the property to be let.

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".

However a term which affects the consumers rights may be valid if it is not done in an unfair way and is reasonable.

It may also be a helpful if unusual clauses, or those which adversely affect the tenant's interest, are given "prominence", e.g. put in a box or in bold type.

So, when drafting their standard contracts, suppliers (including landlords) are now under a duty to respect consumers interests and not to take away rights that they might otherwise have had, or do anything to put the consumer at a disadvantage.

Note that when considering the effect of the regulations in any legal proceedings, a court will look first at what legal rules would have applied if a contract term did not exist, and then consider whether the term has unfairly altered this position.

The regulations also require the use of plain and intelligible language. Terms will be considered unfair if they are written in a way that could mislead an ordinary person who is not legally trained.

Lawyers drafting contracts for consumers should therefore avoid legal jargon and references to statutes which the ordinary person will not understand.

The 'plain language' requirement applies also to the 'core terms'.

The Regulations and Tenancy Agreements

It has been confirmed that the regulations apply to most tenancy agreements. The only landlords who may be exempt are those who are not letting property as a 'business' - ie people who are letting their own home, for example during a year abroad.  Even then the regulations will apply to tenancy agreements where the property is let via a letting agent.

We also have a case from the European Court - Brusse and Garabito v Jahani Ltd [2013] EUECJ C-488/11 ("the Dutch case") which I discuss >> here on the Landlord Law Blog.  This case also confirms that the regulations apply to tenancy agreements.

Note however that hte regulations will not apply where the tenant is a limited company, as a company is not a 'consumer'.

Note that the regulations will also not apply to tenancy agreements which were signed before the Regulations came into effect - i.e. 1st July 1995.

This all means that landlords and letting agents have to be very careful to ensure that their agreements conform to the regulations. Unfortunately many tenancy agreements that were drafted, years ago, will fail the tests today.

This is particularly the case with standard agreements that have been adapted by landlords and letting agents for their own use, without taking legal advice first.

The effect of non-compliance

If a term is found to be in breach of the regulations it will be invalid.

So, for example, if a landlord sues a tenant for penalty charges which have not been paid, and the Judge at the court hearing finds that the relevant penalty clause in the tenancy agreement is in breach of the regulations, then the penalty charges will not be payable and the landlord will lose his case.

However this will not affect the rest of the tenancy agreement which will still be enforceable.

Enforcement

Prior to its closure in April 2014, the Office of Fair Trading (OFT) was tasked with enforcing these regulations.  This role will now be taken over by the Competition and Markets Authority (and in this article please read references to the OFT as being references now to the CMA).

You will find some information on the CMA website >> here.

If it considers a term to be ‘unfair’ it has the power to take action on behalf of consumers in general to stop the continued use of the term, if necessary by seeking an injunction.

These powers are also shared with a range of other enforcers such as local authorities providing a trading standards service and Which? formerly known as the Consumers Association.

In addition, Part 8 of the Enterprise Act 2002, which came into force on 20 June 2003, gives enforcing bodies an enforcement mechanism against traders which breach consumer legislation.

They are able to seek enforcement orders against businesses that breach UK laws where the collective interests of consumers are harmed.

If the business does not stop the offending action, eventually it can be closed down.

So far as the courts are concerned, they will strike down a clause referred to in litigation if they consider that it is unfair - and the Dutch case confirms that they have a duty to do this even if the parties do not ask them to.  

However they will only look at any clauses in question in the litigation, and will not review the whole agreement.

Guidance from the (former) Office of Fair Trading ("OFT")

The OFT dealt with complaints about unfair terms for several years prior to its closure. In November 2001 they issued an official guidance document, and this was then re-published in a revised and updated form in September 2005 (Guidance on unfair terms in tenancy agreements).

The guide was adopted by the CMA and is available from their website.  Although it is no longer supported it is still a useful guide.

Many of the points made in the guidance, although valid, will not actually be a problem in most tenancy agreements current today.

For example, I have never seen a tenancy agreement which specifically states that the landlord will not be liable for the death of the tenant if this is caused by his negligence. However, if you do ever see an agreement with this term, do not worry - it is void under the regulations!

Some general points to note are as follows:

  • Any clauses which limit or exclude rights which tenants would otherwise have had, are almost certainly going to breach the regulations and be deemed unfair, unless there is a very good reason for them (which should be apparent from the agreement).
  • Clauses which impose any penalty or charge on tenants must provide for or state that the charge should be both reasonable in amount and reasonably incurred.
  • Where a clause states that a tenant may only do something with the landlords written consent, this should be followed by the words "(consent not to be unreasonably withheld)" or similar wording.
  • Finally, any clauses which are difficult to understand, or which use legal terminology which is not in common use, or words which have a specific legal meaning which may not be understood by the ordinary person (such as "indemnity"), will also be vulnerable to being found invalid under the regulations.

Plain English

Following on from the last point, in their more recent guidance, the OFT guidance gives a number of examples of terms which they consider are too technical for ordinary tenants to understand.

These include words and phrases such as indemnity, joint and several, and without prejudice.

However technical words and jargon will be allowable if tenants are given an explanation of what they mean.

For example the following in a tenancy agreement would be acceptable:

“Where the tenant consists of more than one person they will all have joint and several liability under this agreement (this means that they will each be liable for all sums due under the agreement, not just liable for a proportionate part).”

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