Corporate Focus - November 2009

Not-so-cunning clauses

OFT action deems Foxtons terms unfair

The Office of Fair Trading (OFT) has succeeded in a High Court action under the The Unfair Contract Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) (UTCCR) against Foxtons. Foxtons is a well known estate and letting agent. Foxtons standard letting terms and conditions contained the following provisions:

Terms which stated that Foxtons was entitled to charge a renewal commission if a tenant introduced by Foxtons to the landlord renewed or extended their tenancy, even where Foxtons had no input into negotiations for the renewal or extension.
A term which purportedly entitled Foxtons to charge a sales commission where a landlord sold a property to a tenant that had been introduced by Foxtons, even if Foxtons had not in anyway been involved in negotiating or facilitating the sale.
A term which said that Foxtons could recover a commission from the landlord it had been involved with, even where that landlord had transferred the property to an unconnected landlord and it was that other landlord that had renewed the tenancy again, without any input from Foxtons.

The OFT argued that these provisions were unfair under the terms of UTCCR. The provisions of UTCCR state that:

Regulation 3 and Regulation 5 - An unfair term is one which was not significantly negotiated and which, contrary to the requirements of good faith, produces a significant imbalance in the parties' rights and obligations under the contract, to the benefit of the supplier or seller.
Regulation 6 (1) & (2) - When a court is considering whether a term is unfair, it has to take into account the nature of the goods or services being provided under the contract and look at all the circumstances around the conclusion of the contract. Consideration of whether the nature of the terms is unfair should relate neither to the definition of the main subject matter of the contract nor the adequacy of the price and remuneration on the one hand, as against the services or goods supplied in exchange, as long as these terms are in plain intelligible language.
Regulation 7 - Terms in the contract should be expressed in clear and understandable language.
Regulation 8 - If a contract term is unfair, that term will not be deemed to be binding on the consumer.

The High Court decided that as a high percentage of landlords own only one or two properties they could be treated as a consumer and therefore come within the protection of UTCCR. They also held that because the renewal and sale conditions were not part of the core bargain between Foxtons and landlords, and as such did fall within the scope of UTCCR. Foxtons reliance on these types of commission as part of their overall income can be seen to be illustrated by the fact that this matter progressed to the High Court. Normally companies involved in this type of action by the OFT will amend their contracts accordingly in order to remove any potential unfair contract terms at the OFT’s behest. The High Court looked at the provisions in order to see whether they created an imbalance between the contracting parties. The court held that these provisions were not within the consideration of the normal landlord, meaning that they would not be expecting to have to pay what was effectively another finders fee to Foxtons with regards to their tenant, if all the tenant had done was renewed their lease. Mann J specifically stated that it did not matter if Foxtons considered their commissions to be part of the core bargain between the parties; the landlord had to be of a similar mindset.

The court also took the step of looking into the intention behind the European Directive 93/13/EEC (on unfair terms in consumer contracts) which forms the basis for UTCCR. They held that a general challenge can be made within the scope of UTCCR and it is not dependent on one the aggrieved party under the contract bringing the action. Furthermore, if a clause is found to be in breach of UTCCR then it is to be removed from all existing contracts, not just those which may come into force in the future.

Also in the background to this court case the OFT and Foxtons had been entering into negotiations over the wording of their terms and conditions in relation to these commissions. Despite this the court rejected the new version of their contracts on the same basis, and stated that those amendments that had been made appeared in some cases to simply be attempts to hide these unfair and onerous conditions more carefully within the small print.

What this case appears to mean in practical terms is that any attempts to conceal onerous terms in consumer contracts, particularly with regards to further charges, is likely to be looked at unfavourably by the courts. Also, just because a clause of this nature may be more prominent doesn’t necessarily make in intrinsically less unfair. If it is unlikely that consideration of that clause would have been at the forefront of the consumer’s mind when he entered the agreement then it could well fall within the scope of UTCCR.

Care needs to be taken in drafting consumer contracts, particularly if they are likely to contain provisions for continuing or extra charges.

If you want any more assistance with this, or have any concerns about drafting consumer contracts please contact Ian Vicary on 0151 242 6841.