When making a tenancy agreement, the position of the landlord is generally stronger than that of the tenant as it is usually the landlord who dictates the terms that he wishes to be included. This is equally so for a landlord whose contract with his letting agent may be largely influenced by the agent.
It may, therefore, be difficult for the weaker party to object to any terms in the agreement with which they do not agree or do not wish to be included, as the other party may refuse to remove them. The weaker party will then be obliged either to accept the unfair terms, or to not enter the contract at all.
The Consumer Rights Act 2015
However, tenancy and agency agreements, as with other types of contract between a commercial party and a consumer, are subject to Part 2 of the Consumer Rights Act 2015 which replaced the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR 1999) on the 1st October 2015. The Act provides that the consumer (in respect of a tenancy contract, this is the tenant) is not bound by terms which are unfair, which means that the landlord cannot enforce them. This prevents the balance of power between the parties from being tipped too heavily against the consumer.
The Act sets out the following requirements:
- agreement terms and notices must be transparent and prominent and expressed in plain and intelligible language;
- agreement terms must be fair so as not to prejudice the balance of rights against the consumer; and
- contracts for services must be performed with reasonable care and skill and within a resonable time.
The Act does not apply to a contract unless one party is a seller/supplier and the other is a consumer. The regulations provide that a consumer means ‘an individual acting for the purposes that are wholly or mainly outside that individual’s trade, business, craft or profession’ and a trader means a person acting for the purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf. If, for example, the landlord is just letting his own home whilst he is abroad, he would not be considered to be letting in the course of business.
Although a landlord must be a commercial party in order for the tenant consumer to enforce the Act against him, such a landlord is unable to enforce the Act himself against his letting agency.
An agency contract will not be within the scope of the Act unless the landlord is himself a consumer. This requires the landlord to be a private person whose tenancy is not within his trade, business or profession. This means that the landlord should not have a large number of properties and they should not provide his main source of income.
The Act has made a significant impact on the style and content of modern tenancy agreements.
Tenancy agreements which had, for generations, contained obscure legal terms and phrases with established meanings can now be declared invalid, as the Act requires that contracts are comprehensible to the layman. Other tenancy terms with onerous implications to the tenant could also be declared unfair.
Terms that are regarded unfair are unenforceable against the landlord (or agent), so do not bind the tenant (or, where the contract is one of agency, the landlord).
Where certain terms are struck out of a contract due to being unfair, this should not affect the rest of the contract. The rest of the contract will be upheld, unless it is unworkable without the unfair term.
The impact of the Act has been substantial, and has considerably benefited the consumer.
Test of fairness
The requirements under the Consumer Rights Act 2015 apply a test of fairness to most standard terms in tenancy agreements. The Act states that with the exception of the main subject matter or core provisions of the contract, which must be transparent and prominent, all terms in a contract or notice should be ‘fair’. A consumer notice or a term in a consumer contract is unfair if contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations to the detriment of the consumer under the contract or notice. An unfair term in a contract concluded with a consumer by a trader 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.
‘Core’ terms are those setting the price or describing the main subject matter of the agreement, and in a tenancy agreement are likely to be the terms containing the rent, the details of the property and the length of the tenancy.
A term in a consumer contract will fail the test of fairness 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
Contractual imbalance is created where a term gives powers to the landlord or agent that they would not otherwise have, or protects him in a way that puts the consumer tenant or landlord at a disadvantage.
Good faith requires fair and open dealing. Openness requires that the terms of the contract should be expressed fully, clearly and legibly, and should not contain any concealed pitfalls or traps. Terms that might disadvantage the consumer should be given appropriate prominence.
Also, contract terms which are hard to understand because of obscure wording or unreadable small print can be found to be unfair, as the consumer should be able to read and understand a term before becoming bound by it.
Good faith also requires landlords/agents not to take advantage of the weaker bargaining position or lack of experience of the tenant/landlord. The courts will consider whether the tenant/landlord was given any inducement to agree the term, and whether the landlord/agent acted fairly and equitably overall.
The Office of Fair Trading (now the Competition and Markets Authority) suggests that unfair terms in a tenancy agreement are those such as:
- terms making the tenant pay for repairs that the law states is the landlord’s responsibility,
- terms giving the landlord complete freedom to decide whether the tenant should pay a penalty,
- terms obliging the tenant to hand the property back at the end of the tenancy in a better state than they received it in,
- it is not clear that the landlord needs a court order to re-enter or take possession of the property,
The key to fairness is seen to be transparency. The Act requires the use of plain and intelligible language, and contracts must be intelligible to ordinary tenants without legal advice. This means using normal words in their usual sense in short sentences, and avoiding legal jargon, statutory references, elaborate definitions and extensive cross referencing.
If there is any doubt about the meaning of a written term, the interpretation that will be taken is that which is most favourable to the consumer.
The tenant may refer an agreement to their local trading standards department who hold powers (via the CMA) to ask a business to stop using offending standard terms or agreements.
It is the duty of these enforcers to consider any complaints they receive about the unfairness of a contract term. However, whether a term is fair can be decided only by the courts.