Governors of Peabody Trust v Reeve [2008]

In a test case, the High Court decided that a clause in a tenancy agreement allowing the landlord to vary terms of the tenancy agreement without the consent of the tenant would be unfair under the UTCCR 1999 and would not be binding on the tenant.

This was a reserved judgment in a test case relating to the ability of a registered social landlord to unilaterally to alter the terms of its tenancies for approximately 10,000 tenants.
The social landlord provided low cost residential accommodation, and was also a charity.
Prior to the Housing Act 1988, the social landlord had been in the same position as a local authority landlord, and had been able to grant secure tenancies. The landlord can unilaterally vary the terms of a secure tenancy by serving a notice on the tenant, but must consider the tenant’s comments and allow the tenant to respond with a notice to quit. However, following the 1988 Act social landlords were treated more like private landlords, and no longer benefited from the same statutory protection as local authority landlords.

One of the clauses in the standard tenancy agreement provided
(a)   that terms relating to rent could not be altered without the written agreement of both the landlord and the tent, but
(b)   that the other terms of the contract could be varied by the landlord unilaterally. The landlord would serve a notice on the tenant as though he had a secure tenancy (which he actually did not).
The two different parts of this clause were contradictory.

The High Court judge had to answer two questions in this test case:

• whether the clause contained in the current standard tenancy agreement did give the landlord the ability to vary the tenancy unilaterally, using the same procedure as for secure tenancies (section 103 Housing Act 1985), and
• if the clause did give the landlord this right, would it be considered unfair and therefore not binding due to the Unfair Terms in Consumer Contracts Regulations 1999, Reg 8?

One of the variations that the landlord wanted to make was to insert  a detailed means of caluculating and recovering a charge for the services that it currently provided free, as it was finding its housing stock impossible to manage.

HELD:
The judge was not convinced that it is actually impossible for a social landlord to manage around 10,000 properties without a unilateral method of varying the terms of tenancies, but accepted that the lack of a statutory power to do so (such as that provided for local authority landlords) could possibly make the housing stock of a social landlord unmanageable.
However, the tenancy agreement did make provision for a large number of circumstances, so it could not be seen that the absence of the power to make unilateral variations would leave the landlord in an impossible position.
Further, the judge also commented that as Parliament chose not to give social landlords the statutory power to vary terms in the same way as it gave this power to local authority landlords, it chose to take the risk of the housing stock of a social landlord becoming unmanageable.

It was concluded that as the clause was contradictory, its interpretation was ambiguous. Therefore, Reg 7 obliged the court to interpret it in the way most favourable to the tenant. This meant that terms of the tenancy agreement could not be varied without both the written consent of both the landlord and the tenant.

Fairness
Although, having decide that the term should be interpreted in favour of the tenant, the court did not need to determine whether it was unfair, the judge considered this anyway. He concluded that the term had not been individually negotiated, and did cause a significant imbalance in the rights and obligations of the parties. This was to the detriment of the tenant as the only way that the tenant an avoid the term is by serving a notice to quit the tenancy, which means that he is giving up his home and must find somewhere else to live.
It was also said that in setting out two entirely contradictory clauses and then trying to rely on the more obscure one must be contrary to the concept of fair and open dealing.

The court ruled that:
(i)    the landlord’s standard form of tenancy agreement did not allow unilateral variation, but that it did provide that, except in relation to changes in rent, the agreement could only be altered by agreement of both the landlord and the tenant,
(ii)   if the tenancy agreement had actually provided for unilateral variation, Reg 8 UTCCR 1999 would mean that it would not be binding on a tenant because it would cause a significant imbalance in the tenant’s rights and obligations, and
(iii)  to satisfy the requirements the UTCCR 1999, any unilateral variation clause would need to take full and proper account of the guidelines provided by the Office of Fair Trading for tenancy agreements.

Citation: Governors of Peabody Trust v Reeve [2008] EWHC 1432 (Ch)