Unfair contracts - set off?

Consumer protection

The Unfair Terms and Consumer Contracts Regulations 1999 (the Regs) provide protection for any individual not acting in the course of his or her business against any terms in a contract, such as standard terms, that are imposed on the consumer without any opportunity to negotiate.

Standard terms are those devised by a business in advance and not individually negotiated with the consumer.

A consumer will not be bound by a standard term in a contract with a supplier if that term is unfair.

Unfair term?

An unfair term is one that creates significant imbalance in the parties' rights under the contract, to the detriment of the consumer, contrary to the requirement of good faith.

If a standard term has the effect of reducing the consumer's rights under the ordinary rules of contract, this is likely to cause an imbalance.

Residential tenancy agreements

The Office of Fair Trading (the OFT) has released guidance concerning unfair terms in tenancy agreements. This guidance assumes that a Landlord can be regarded as a supplier and a Tenant, a consumer. Therefore, the Regs can apply to standard letting agent’s terms.

Landlord's often use a "no set-off" clause in tenancy agreements to secure possession of the premises on the grounds of rent arrears.

The Regs give a Tenant the right to challenge the ability of the Landlord to rely on such a clause.

Action to take

In practice, a consumer must challenge the terms which they consider to be unfair, either through the courts or through the OFT. It is essential that the consumer seeks legal advice before becoming involved in a dispute that could lead to court proceedings.

Landlords should seek legal advice on whether current and proposed tenancy agreements comply with the OFT's guidance.

This bulletin is not intended to be comprehensive or to provide specific legal advice. It should not be relied upon in the absence of specific advice given in relation to particular circumstances.

For further information on this or any related topic please contact Mark Grimes.