Terms in letting agreements relating to the payment of renewal commission and commision payable if a property was sold to the tenant were found, on the basis of the particular  wording used, to be unfair under the Unfair Terms in Consumer Contracts Regulations 1999.

The Office of Fair Trading (OFT) brought an action challenging the terms and conditions contained in the letting contracts used by an estate agency, Foxtons. The OFT said that the terms were unfair, and sought a declaration to this effect or an injunction in respect of two contracts. Shortly before the hearing, Foxtons stopped using the terms in question (the ‘old terms’) and started to use different terms (the ‘new terms’). Although some of the terms queried by the OFT have been removed, the question of the fairness of the old terms remained. Questions also arose as to the fairness of the new terms.

The clauses in respect of which the OFT took action were:

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 held that the UTCCR 1999 apply to contracts relating to land, such as tenancy agreements.
Tenants are regarded ‘consumers’ and landlords are ‘sellers or suppliers’. This includes councils.

The Court of Appeal heard conjoined appeals against orders allowing judicial review of decisions of Newham council in respect of its housing responsibilities arising under the homeless persons legislation contained in the Housing Act 1996.

The applicants had all applied to the council as homeless persons to be provided with accommodation under this Act.  The judicial review proceedings relate to the council’s policy or practice in providing housing to persons to whom they owe the duty to ensure that accommodation is available for their occupation.

It was complained by the applicants that that the council required them to accept or refuse the accommodation it offered, without giving them the opportunity first to view it. The judge accepted their criticisms.

One of the applicants also asked whether the UTCCR 1999 applied to his tenancy agreement, and further questions arose.

This case concerns the applicability of the Unfair Contract Terms Regulations1999 to agency contracts, and more particularly, to commission rates.

There has been substantial enforcement activity of the unfair terms regulations by the OFT in recent years but little actual case law which clarifies the true legal position.  This case is, therefore, significant for letting agents as it examines the legality of price escalation clauses and similar 'penalty clauses' in agency agreements.

Owners of a flat in London wished to sell it, and entered into a ‘Confirmation of Marketing Agency Agreement’ with Bairstow estate agency. The written agreement contained a clause that the clients would pay the standard commission rate of 3% of the final sale price of the property (plus VAT), but that the discounted commission rate for early payment was 1.5% (plus VAT).

On the other side of the agreement were the terms and conditions, stating that Bairstow would charge a ‘commission fee’ in relation its marketing of the property. This fee would be earned if, during the period of the agreement, Bairstow introduced a buyer to the property or entered negotiations with the person who later contracted to purchase the property. The discounted fee was available only if payment was made within 10 days of the completion date; if it was not then the standard rate would be applicable and interest (at 3% above the base rate) would accrue.

Bairstow introduced a buyer, and the sale was completed. The fee was indisputably payable, but the clients’ solicitors did not pay the full 1.5% commission within 10 days. There was nearly £400 unpaid when 10 days expired, despite that the funds were in place and the solicitors had authority to make the full payment.

Bairstow was quite tolerant of this, but three months later claimed the entirety of the 3% standard rate fee (minus the amount already paid). However, they did make it clear that if the outstanding £387 due under the discounted rate was paid, they would not seek to recover the extra under the standard rate. (This extra under the 3% standard rate amounted to almost £3,000.) No payment was made, and Bairstow took action against the clients. Before the proceedings the £387 was paid, but they continued to the court.

On behalf of all consumers, the Director General of Fair Trading (now the Office of Fair Trading) brought an action to test the fairness of clauses in loan agreements that secure commercial interest rates for a bank after a debtor defaulted and they had been to court to determine their repayment scheme.  The statutory interest rates do not apply to consumer credit agreements, so the bank had inserted a clause into their loan agreement seeking to claim interest.