Tenancy Agreements and the OFT - a review of recent developments
Standard form tenancy agreements are now treated in the same way as other consumer contracts. Since the publication in November 2001 of the 'Guidance on unfair terms in tenancy agreements' letting agents and landlords must assess their agreements in the light of the guidance or they may find that their local Trading Standards will do it for them.Tenants can refer their agreements to their local Trading Standards Department.
Persuasion
Whilst it is ultimately up to the courts to make the final decision on the fairness or otherwise of a term of a tenancy or agency agreement, the role of both the Office of Fair Trading (OFT) and the local authority Trading Standards Departments, is of more practical importance. Your local Trading Standards Department can assess the fairness of the tenancy agreements that you are using. The power to apply for an injunction to prevent the use of an unfair term, contained in the Regulations, is used to persuade landlords and letting agents to amend their contracts.
Between the introduction of The Unfair Terms in Consumer Contracts Regulations in October 1999 and the end of 2004 there have been over 50 instances of letting agents, estate agents and those involved in student or holiday lettings who have had to alter their agreements. Whilst some of the changes have been small, involving the removal or amendment of a clause, others have involved fairly extensive rewriting of the contractual provisions.
Although there has been little doubt that the regulations applied to residential landlords, this has now been confirmed by the first test case in the Court of Appeal earlier this year. In Khatun v London Borough of Newham, a local authority claimed that the Regulations did not apply to contracts applying to land, nor to them as a public sector landlords. The Court of Appeal quashed both of these claims ruling that both private and public sector landlords are subject to the Reglations.
Changes
We have monitored recent cases being published by the OFT, and the changes required by them. The alterations were generally required where the term was unduly biased against the tenant or where the term was felt to be unclear.
Some examples of situations where alteration or removal were required included:-Financial penalties:
- Unfair retention of prepayments
- Excessive discretion to withhold the return of a deposit at the end of the tenancy
- Direct penalties, for example the payment of £5 per day when in arrears with rent
- Making the tenant liable for administrative and credit reference fee where the landlord decides not to proceed with the tenancy agreement
- Requiring the tenant to sign a declaration saying that he had read and understood the agreement when this might not have been the case
- Use of legal jargon such as "tort", "indemnify", "indemnity", "irrevocably assigns"
- Quoting fees net of VAT
- Unclear provisions which failed on the plain language test
- Excluding the agent's liability for supplying inaccurate property details
- Excluding landlord's liability for consequential loss or damage and also for death or injury caused by breach of duty by the landlord, his agents or employees
- Restrictions on liability for misrepresentations and misdescriptions made over the telephone in relation to holiday cottages
- Requiring three months' notice to terminate an agency agreement
- Unreasonably short time limits on claims for damages against landlords
Whilst it is not possible here to include full details of the offending clauses and the revised wordings for the clauses that were acceptable to the OFT, this information is readily available from the various Unfair Contracts Review Bulletins that are regularly published by the OFT, and available on their website.
It should be stressed that none of these required changes have been tested in the courts, they will have an impact on all letting agents and landlords. There is an expectation in the OFT Guidance that all those who use any form of standard form agreement should review their agreements in the light of the guidance.
Letting Centre agreements
Having been one of the earliest publishers of letting forms to voluntary refer our agreement (in 1998) to the Office of Fair Trading, we have had some useful prior experience with the OFT revision process.
In November 2002 the Letting Centre received a letter from the Office of Fair Trading (OFT) requesting that we review our assured shorthold tenancy agreement in the light of their "Guidance on unfair terms in tenancy agreements" and the provisions of the Unfair Terms in Consumer Contract Regulations 1999. This was despite the fact that we had asked them to review our agreement four years earlier.
They wanted us to reconsider 25 of the clauses in our standard version assured shorthold agreement. In March 2004 we completed the process and to quote from their last letter, "we are prepared to accept your letter as amounting to an undertaking for the purposes of Regulation 10(3) and to discontinue action under the Regulations accordingly". At the end of the process the OFT specifically reserved its position on only two of our clauses, one on pets and one on alterations to the property and in both they had concerns on a landlord's consent being required in writing.
Heavy-handed
All this might appear somewhat heavy-handed, especially considering we had already undergone a prior review of our agreement with them. This unfortunately is their standard stance and it is clear that they had changed their own view on several areas in the intervening time. They are now requesting very tenant-friendly agreements, which appearing much fairer to consumer groups, considerably undermines the power of the landlord to effectively manage his own property.
A good example of this is the pets clause where they were, under the threat of enforcement action against our tenancy agreement, the OFT are requesting that the landlord could not unreasonably refuse a tenant's request to keep pets at the property despite the initial tenancy agreement stating that pets were not permitted. Quite reasonably (we believe) we refused this particular request by the OFT.
Useful exercise
Surprisingly, at least for those of us involved in the process at the Letting Centre, it was much less painful and much more beneficial than we had expected. We regularly reviewed the contents of the tenancy agreements, indeed our last review prior to 2002 had included a consideration of the OFT's Guidance. However it is easy to accept standard clauses and what they mean simply because of familiarity.
For a lawyer legal jargon is just the way you express yourself. Words such as "effects", or "determination" and phrases such as "the tenancy shall absolutely determine without prejudice" or "revision expectant on determination" may well not be understood by a tenant or indeed a landlord or his agent. The need to look at our tenancy agreement in the detail required by the OFT has led to a better agreement. Not just fairer for the tenant but better for the landlord as well. It made us concentrate on just what we wanted the tenancy agreement to achieve.
Many clauses could be amended to satisfy the OFT without impairing their effect. Others, for example our forfeiture clause, are clearer in their meaning as a result of the changes. The review process was highly beneficial.
Stand your ground
It was an important part of the review process to know when to stand your ground. At one point the OFT wanted removal of all reference to the use of section 196 of the Law of Property Act 1925 on the basis that "the inclusion of the rules for notices set out in section 196 of the Law of Property Act 1925 may be onerous on the tenant. We consider that the common law rules regarding service of notices give the landlord ample protection." This not only ignored the fact that the provision was introduced to deal with the problems caused by the common law rules and the statutory rules have been working satisfactorily for nearly 80 years. The Letting Centre, unlike a number of other publishers of tenancy agreements, resisted the OFT's views in some areas such as these and our tenancy agreements still utilise the provisions of section 196.
Pets
Similarly our 'pets' clause caused the OFT concern. Our current clause reads:-
"(3.7) Not to keep any cats or dogs at the property and not to keep any other animals, reptiles or birds (or other living creatures that may cause damage to the Property, or annoyance to neighbours) on the Property without the Landlord's written consent. Such consent, if granted, to be revocable, on reasonable grounds by the Landlord"
The OFT took the view that, where the landlord reserves the right to give consent for pets to be kept at the property, the term should specify that such a consent will not be unreasonably withheld and they objected to terms requiring tenants to obtain written consent where oral consent would suffice. After much discussion of the needs of landlords and what should be possible in a private rented sector tenancy we stood our ground.
We also felt that issue of putting consents by the landlord in writing was an important safeguard for both landlord and tenant. The OFT, on this point, seemed strangely out of step with the Law Commission, who in their recent reportiii emphasised the importance of reducing the terms of an agreement into writing and subject to a penalty where this was not done. But despite our disagreements with the OFT, the exercise of reviewing our tenancy agreements remains a beneficial exercise and our tenancy agreements are better for having been through the process.