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Tenants have unfair contract terms protection

High Court upholds OFT view

PN 133/03     21 October 2003

The High Court has decided, in line with the OFT's views, that the Unfair Terms in Consumer Contract Regulations (UTCCRs) apply to tenancy agreements and other contracts relating to a transfer of an interest in land.

The OFT was acting as an interested party in a case about the London Borough of Newham's housing policy for homeless persons. The council claimed that the UTCCRs did not apply to land, including the terms of its agreements; that it was not a supplier for the purposes of the regulations, as it was fulfilling a statutory duty; and that the tenant was not a consumer, as she was seeking a benefit from the state.

Mr Justice Newman ruled that the regulations do apply to contracts for the transfer of an interest in land (including tenancy agreements), that the Council can be considered a supplier and the tenant a consumer.  The judge also accepted the OFT's argument that exempting contracts relating to land would significantly reduce the protection for consumers. The judge did not rule on whether the terms in the contract were fair.

Permission to appeal the judgment was given to the London Borough of Newham on the ground that the case raises issues of public importance. 

Welcoming the judgment, John Vickers, OFT Chairman, said:

'This judgment confirms that the unfair contract terms legislation can protect tenants and applies to local authorities as well as private landlords. No landlords should use terms that are unfair and we will continue to act against those that do.'
 
NOTES

1. The judicial review was brought by three tenants of Newham council regarding the council's placement policy on housing homeless people. The complainants alleged that the policy was unfair as it required homeless people to accept properties without viewing them and that failure to do so would result in cancellation of any temporary accommodation already provided by the council. One of the complainants also complained that Newham council's standard tenancy agreement contained unfair terms. The OFT was asked to defer any action regarding the unfair terms complaint until after the judicial review had been heard.

2. In handing down judgment on the applicability of the UTCCRs, Mr Justice Newman based his view on the purpose and proper interpretation of the EC directive that the UTCCRs implement; the fact that contracts for land were not explicitly excluded from the Directive and the UTCCRs; and that to exclude such contracts would impede the purposes of the Directive and create a shortfall in protection available to consumers.

3. The judge also ruled that Newham's housing placement policy for the homeless was unlawful. OFT was not involved in this part of the case though.

4. The judicial review was heard on 15 and 16 July 2003 and judgment was handed down on 10 October 2003.

5. The Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs) superseding the UTCCRs 1994, apply to standard contract terms used with consumers. The UTCCRs protect consumers against unfair standard terms in contracts they make with traders. The OFT, together with certain other bodies, can take legal action to prevent the use of potentially unfair terms. A term is likely to be considered unfair if it causes a significant imbalance in the parties' rights and obligations under the contract, to the detriment of consumers. The regulations say that a consumer is not bound by a standard term in a contract with a trader if that term is unfair. Ultimately, only a court can decide whether a term is unfair.

6. The OFT published 'Guidance on unfair terms in tenancy agreements' in November 2001 (see PN 44/01) and a consumer leaflet entitle 'Unfair tenancy terms - don't get caught out' in April 2002 (see PN 19/02).

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