The Office of Fair Trading's Guidance on Unfair Terms in Tenancy Agreements

New guidance on how the Unfair Terms in Consumer Contracts Regulations apply to tenancy contracts has been issued by the Office of Fair Trading (OFT) with the intention of helping landlords provide clear and fair contract terms to their tenants.

Unfair terms regulations

The Unfair Terms in Consumer Contracts Regulations (UTCCRs) came into force in 1999 (superseding the UTCCRs 1994) and apply to standard contract terms used with consumers in contracts made after 1 July 1995. The UTCCRs are designed to protect consumers against unfair standard terms in contracts they make with suppliers. The OFT, together with trading standards and certain other bodies, can take legal action to prevent the use of potentially unfair terms. A term is unfair if it causes a significant imbalance in the parties' rights and obligations under the contract, to the detriment of consumers. Standard terms may be drafted to protect commercial needs but must also take account of the interests and rights of consumers by going no further than is necessary to protect those legitimate commercial interests. An unfair term in a contract covered by the UTCCRs is not binding on the consumer. Ultimately, only a court can decide whether a term is unfair.

Enforcement

The practical consequence is that a term in a tenancy agreement which a landlord believes that he can rely on, may, if deemed unfair, be unenforceable.

New Guidance

It is important that both agents and landlords understand both the nature and consequences of this guidance. This guidance on standard tenancy contracts is a revision of guidance published in 2001, which it replaces, and has been updated to reflect enforcement action taken by the OFT, court judgements, and the current experience in dealing with tenancy contract complaints.

The new guidance outlines why some standard contract terms used in tenancy agreements are considered to be potentially unfair and include examples of terms considered to be unfair and possible ways of revising them. Examples of unfair terms include those that:

• exclude or limit the landlord's liability, for example by transferring the landlord's legal obligations to the tenan
• impose potentially excessive penalties on tenants for failure to meet the terms of the contract e.g. by charging excessive rates of interest on late payments of rent
• enable the landlord to vary the terms of the contract, to impose new rules on the tenant or increase the rent at short notice.

Use of legal jargon and lack of intelligible language will also give rise to unfairness. So some standard clauses lack the required transparency and would have to be reworded:
'the 'Landlord' shall include the Land- lord's successors in title and assigns', or
'where the party consists of more than one person the obligations apply to and are enforceable against them jointly and severally'

Examples:

Reprinted below are some examples of clauses from tenancy agreements that the OFT deems are unfair, and suggested improvements.
Unreasonable obligations:
'To keep the property and its furnishings tidy and dusted at all times.'
OFT View:  'When to do this is a matter for the tenant to decide, although we see no objection to terms requiring that the tenant must keep the property reasonably clean in order to avoid excessive deterioration.'

'Not to allow any guests to stay overnight at the Property'
OFT View:  'This term is unfair and should be deleted.  Having guests stay overnight is normal use of the property on an occasional basis.'

Notice of termination
'At least one month's notice is required from the tenant before termination of existing contract.  Failure to do so may result in the deposit being retained by the landlord due to loss of income.'
OFT Clause:  'The tenant is asked to keep the landlord informed of whether he intends to leave at the end of the fixed term or renew the tenancy.'

Unfair penalties
'Should it be necessary to send a letter with regards to late payment of rent, these are chargeable to the tenant at a rate of £35 plus VAT'
OFT Clause:  'The tenant must pay the reasonable costs of the Landlord's Agent for each letter the Agent, acting reasonably, has to send to the tenant concerning breaches of the tenancy agreement.'

The OFT will generally object to a penalty that stipulates a fixed sum to be paid in all instances, if the amount is too high in some cases.  Any fixed charges must be 'reasonable' in all cases.