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Tenants and new home buyers protected from unfair contract terms

OFT welcomes Court of Appeal Judgment

29/04    24 February 2004

Tenants in both private and public sector accommodation and consumers buying new homes from developers are protected by the Unfair Terms in Consumer Contract Regulations (UTCCRs), the Court of Appeal confirmed today.

In a case concerning the London Borough of Newham's housing policy for homeless people, the Court decided, in line with the OFT's views, that the UTCCRs apply to tenancy agreements and other contracts relating to land transactions. It ruled that there is no basis for excluding land transactions from the scope of the UTCCRs, and that such an exclusion would be at odds with the purpose of the legislation, which is to provide a high level of protection for consumers.

The Court also ruled that a public or government body can be a supplier, and a tenant a consumer, within the meaning of the UTCCRs. Newham had claimed that it was not a supplier, as it was fulfilling a statutory duty as a housing authority; and that the tenant was not a consumer, as she was seeking a benefit from the state.

John Vickers, OFT Chairman, said:

'This important Judgment confirms that tenants – including tenants in public sector accommodation – have consumer protection from unfair terms. So do buyers of new homes. With housing as with other services, consumer contracts must be clear and free of unfair standard terms.'

As directed by the Court, the OFT will now consider whether the terms of the London Borough of Newham's standard non-secure tenancy agreement are potentially unfair and will raise any concerns directly with the authority.

NOTES

1. The appeal was brought against the decision of the Administrative Court in the judicial review by three tenants of the London Borough of Newham's placement policy on housing homeless people. One of the tenants also complained that Newham's standard tenancy agreement contained unfair terms. Newham argued that the UTCCRs did not apply to their tenancy agreement. The OFT intervened as an interested party because it is the lead regulator with enforcement powers under the UTCCRs. It was asked to defer any action regarding the unfair terms complaint until after the judicial review had been heard.  The Court did not consider the fairness of the terms and was not asked to do so.

2. At the judicial review, Mr Justice Newman found that contracts for land were not excluded from the EC Directive which the UTCCRs implement and that to exclude such contracts would impede the purposes of the Directive and create a shortfall in protection available to consumers (see press release 133/03). Newham's appeal against that ruling was heard on 17 and 18 December 2003.

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

4. Nearly 4 million UK households live in social rented accommodation and 2.1 million UK households live in private rented accommodation. Today's ruling applies to tenancies agreements after 1 July 1995 where the landlord is a 'seller or supplier' and the tenant a 'consumer' within the meaning of the UTCCRs.

5. The Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs) superseded the UTCCRs 1994, and 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 UTCCRs 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 and a consumer leaflet entitled 'Unfair tenancy terms – don't get caught out' in April 2002 (see press release 19/02).

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