Unfair Terms

When making a tenancy agreement, the position of the landlord is generally stronger than that of the tenant as it is usually the landlord who dictates the terms that he wishes to be included. This is equally so for a landlord whose contract with his letting agent may be largely influenced by the agent.
It may, therefore, be difficult for the weaker party to object to any terms in the agreement with which they do not agree or do not wish to be included, as the other party may refuse to remove them. The weaker party will then be obliged either to accept the unfair terms, or to not enter the contract at all.

The Unfair Terms in Consumer Contracts Regulations 1999

However, tenancy and agency agreements, as with other types of contract between a commercial party and a consumer, are subject to the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR 1999). These Regulations replaced the similar regulations of 1995, and aim to combat this problem in all contracts with consumers. The UTCCR 1999 provide that the consumer (in respect of a tenancy contract, this is the tenant) is not bound by terms which are unfair, which means that the landlord cannot enforce them. This prevents the balance of power between the parties from being tipped too heavily against the consumer.

The Regulations have two main requirements:

• agreements must be expressed in plain and intelligible language (Reg 7(1)), and
• agreements must be fair so as not to prejudice the balance of rights against the consumer (Reg 5(1))

Consumer
The Regulations do not apply to a contract unless one party is a seller/supplier and the other is a consumer.
Reg 3(1) provides that ‘consumer’ means any natural person who is acting for purposes which are outside his trade, business or profession.
The same Reg also provides that a ‘seller or supplier’ is any natural or legal person who is acting for purposes relating to his trade, business or profession. If, for example, the landlord is just letting his own home whilst he is abroad, he would not be considered to be letting in the course of business.

Although a landlord must be a commercial party in order for the tenant consumer to enforce the Regulations against him, such a landlord is unable to enforce the Regulations himself against his letting agency.
An agency contract will not be within the scope of the UTCCR 1999 unless the landlord is himself a consumer. This requires the landlord to be a private person whose tenancy is not within his trade, business or profession. This means that the landlord should not have a large number of properties and they should not provide his main source of income.

Effect
The Regulations have made a significant impact on the style and content of modern tenancy agreements.
Tenancy agreements which had, for generations, contained obscure legal terms and phrases with established meanings can now be declared invalid, as the regulations require that contracts are comprehensible to the layman. Other tenancy terms with onerous implications to the tenant could also be declared unfair.

Term that are regarded unfair are unenforceable against the landlord (or agent), so do not bind the tenant (or, where the contract is one of agency, the landlord).
Where certain terms are struck out of a contract due to being unfair, this should not affect the rest of the contract. The rest of the contract will be upheld, unless it is unworkable without the unfair term.
The impact of the Regulations has been substantial, and have considerably benefited the consumer.

Test of fairness
The UTCCR 1999 apply a test of fairness to most standard terms in tenancy agreements. The Regulations state that any terms that fail this test and are declared to be unfair will not be binding, with the exception of the ‘core’ terms of the agreement and terms which are individually negotiated.

‘Core’ terms are those setting the price or describing the main subject matter of the agreement, and in a tenancy agreement are likely to be the terms containing the rent, the details of the property and the length of the tenancy.

A term will be regarded as not having been individually negotiated where it has been drafted in advance and the consumer has not been able to influence the substance of the term. Individually negotiated terms are those that are not part of a standard pre-prepared agreement but have been decided on in communication between the parties.
However, although they are not subject to the test of fairness, core terms and terms that have been individually negotiated must still be in clear and intelligible language.

A term in a consumer contract 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’. (Reg 5(1))

Contractual imbalance is created where a term gives powers to the landlord or agent that they would not otherwise have, or protects him in a way that puts the consumer tenant or landlord at a disadvantage.

Good faith requires fair and open dealing. Openness requires that the terms of the contract should be expressed fully, clearly and legibly, and should not contain any concealed pitfalls or traps. Terms that might disadvantage the consumer should be given appropriate prominence.
Also, contract terms which are hard to understand because of obscure wording or unreadable small print can be found to be unfair, as the consumer should be able to read and understand a term before becoming bound by it.

Good faith also requires landlords/agents not to take advantage of the weaker bargaining position or lack of experience of the tenant/landlord. The courts will consider whether the tenant/landlord was given any inducement to agree the term, and whether the landlord/agent acted fairly and equitably overall.

The OFT suggests that unfair terms in a tenancy agreement are those such as:

• terms making the tenant pay for repairs that the law states is the landlord’s responsibility,
• terms giving the landlord complete freedom to decide whether the tenant should pay a penalty,
• terms obliging the tenant to hand the property back at the end of the tenancy in a better state than they received it in,
• it is not clear that the landlord needs a court order to re-enter or take possession of the property,

Plain language
The key to fairness is seen to be transparency. The regulations require the use of plain and intelligible language, and contracts must be intelligible to ordinary tenants without legal advice. This means using normal words in their usual sense in short sentences, and avoiding legal jargon, statutory references, elaborate definitions and extensive cross referencing.

If there is any doubt about the meaning of a written term, the interpretation that will be taken is that which is most favourable to the consumer.

Enforcement
Powers of enforcement are held by the Office of Fair Trading (OFT) and other qualifying bodies, such as the Information Commissioner, the Financial Services Authority and all trading standards services.
It is the duty of these enforcers to consider any complaints they receive about the unfairness of a contract term. If they believe a term to be unfair, they have powers to ask a court for an injunction to prevent the term being used or recommended for use.
However, whether a term is fair can be decided only by the courts.

 

Relevant Factsheets

Factsheet 10 – The Unfair Terms in Consumer Contracts Regulations 1999

Factsheet 10b - Office of Fair Trading Guidance on Unfair Terms in Tenancy Agreements