Unfair Contract Terms Guidance

Published by the Competition and Markets Authority

Overview:

This guidance was published by the Competition and Markets Authority (CMA) in July 2015. The guidance sets out the CMA’s understanding of the provisions concerning fairness of contract terms and notices set out in the Consumer Rights Act 2015 (CRA 2015) (see Letting Factsheet 10).The guidance explains the fairness and transparency tests (including exemptions from the assessment of fairness) under the CRA 2015 and provides detail on why the CMA considers certain terms or notices to be unfair or unenforceable. The guidance represents the CMA’s considered views and the basis on which it is likely to take enforcement action.

The Test of Fairness:

The CRA 2015 applies a test of fairness to most standard terms in consumer contracts and notices including those that have been individually negotiated. It does not apply to ‘core’ terms, which set the price or describe the main subject matter of the agreement, provided that they are transparent and in plain and intelligible language. A standard term fails the test of fairness “if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract, to the detriment of the consumer” (Section 62 CRA 2015).

The requirement of good faith embodies a general principle of ‘fair and open dealing’ and ensures that the fairness assessment includes ‘an overall evaluation of the different interests involved.’ Contracts should be drawn up in a way that respects the consumer’s legitimate interests. Terms should be expressed fully, clearly and legibly and contain no pitfalls or traps in order to the meet the open dealing requirement. The CMA explain that fair dealing requires a trader not to, whether deliberately or unconsciously, take advantage of the consumer’s circumstances to their detriment and believe that the trader should, when formulating contract terms, also actively take the consumer’s legitimate interests into account.

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