The Unfair Terms in Consumer Contracts Regulations 1999

(Council Directive 93/13/EEC)

Commencement:

The Regulations came into force on 1st October 1999.

Scope:

The Regulations revoke the Unfair Terms in Consumer Contracts Regulations of 1994 and relate to any term in a contract or agreement made between a seller or supplier of goods or services and a consumer, where the seller or supplier is acting for purposes relating to his business and where the term has not been individually negotiated.

A 'consumer' is defined as a natural person who is acting for purposes which are outside his business.   A term shall always 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  (e.g. pre-printed terms, standard agreements held on a word processor).

Contracts for the sale of land, tenancy agreements and mortgages can be caught by the Regulations in situations where the supplier or seller is not a private individual and is acting in the course of business.   A seller or supplier is defined as 'any natural or legal person who, in contracts covered by these Regulations, is acting for purposes relating to his trade, business or profession, whether publicly owned or privately owned;'   This clearly includes letting and estate agents, government departments, housing associations and local or public authorities.

Private landlords will be affected by the Regulations where they are considered to be acting for purposes relating to their trade, business or profession.  Whether or not they are will depend on their particular circumstances.  The Regulations are not clear about what will be considered such purposes.  However, the Office of Fair Trading have indicated that there will be circumstances under which private landlords will not be considered to be acting for purposes relating to their trade, business or profession.

For letting agents and estate agents the management or agency agreement defining the contract between agent and client will be caught by the Regulations where the client is an individual and not acting for purposes relating to their trade, business or profession.  If the client is a commercial landlord, the letting agreement or lease will be subject to the Regulations when letting to private individuals but the management agreement will be exempt.

The Regulations require:

- FAIRNESS.  With the exception of the main subject matter or core provisions of the contract, all terms in a contract should be 'fair'.  The terms should not be contrary to the requirement of good faith and cause a significant imbalance in the parties rights and obligations under the contract to the detriment of the consumer.  An unfair term in a contract concluded with a consumer by a seller or supplier shall be  unenforceable although the contract as a whole shall continue to bind the parties if it is capable of continuing in existence without the term.

- PLAIN LANGUAGE.  A seller or supplier shall ensure that any written term of a contract is expressed in plain, intelligible language,  and if there is doubt about the meaning of a written term, the interpretation most favourable to the consumer shall prevail.

- GOOD FAITH.  A contractual term which has not been individually negotiated shall be regarded as unfair 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.

Recommended Action:

• Businesses should review any standard forms that prescribe terms and conditions of contract with consumers.
• Unfairness Test.  Check for terms in contracts that could be considered as contrary to the requirement of good  faith. The Regulations also contain an illustrative list of terms which may be regarded as unfair.  We present some examples of these:

(a) a term authorising the seller or supplier to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer, or permitting the seller or supplier to retain the sums paid for services not yet supplied by him where it is the seller or supplier himself who dissolves the contract;

(b) a term enabling the seller or supplier to terminate the contract of indeterminate duration without reasonable notice except where there are serious grounds for doing so;

(c) a term excluding or hindering the consumer's right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions, unduly restricting the evidence available to him or imposing on him a burden of proof which, according to the applicable law, should lie with another party to the contract.

Scotland:

These Regulations apply in Scotland.  References to an "injunction" or an "interim injunction" should, when applying the Regulations in Scotland, be read as "interdict" or "interim interdict" respectively.

Exclusions:

- INDIVIDUALLY NEGOTIATED contracts are excluded.  A term shall 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.

- CORE PROVISIONS.  The Regulations state that, subject to the plain language requirement, no assessment shall be made of the fairness of any term which defines the 'main subject matter of the contract' or the adequacy of the price or remuneration.   In the case of a tenancy agreement this would mean that the consumer could not rely on the Regulations to determine the rent agreed but could rely on them to judge whether a prohibitive clause preventing the tenant from doing something (e.g. keeping pets, re-decorating) was unfair.

Enforcement:

It is the duty of the Director General of Fair Trading to consider any complaint brought.  He may, if he considers it appropriate to do so, bring proceedings for an injunction against any person or firm to prevent continued use of the offending contract terms.

Trading standards departments and the Consumer Association may also apply for an injunction to prevent the continued use of an unfair term.

Sources for Further Information:

• HMSO:  Copy of Regulations: The Unfair Terms in Consumer Contracts Regulations 1999, S.I. 2083 available from The Stationery Office Publications Centre, P O Box 276, LONDON SW8 5DT.  0870 600 5522 or free of charge from the Office of Public Sector Information's website: www.opsi.gov.uk
• Department of Trade and Industry, 10-18 Victoria Street, LONDON, SW1H ONN.  020 7215 5000
• The Letting Centre, website: www.letlink.co.uk

This summary is intended to assist landlords and organisations managing property to understand the effect of the Regulations.  It is not an authoritative interpretation - this is a matter for the courts.  For more detail, you should refer to the text of the Regulations themselves.