On 1 October 2015 the Consumer Rights Act 2015 (“CRA”) came into force. CRA superseded the Unfair Terms in Consumer Contracts Regulations 1999 (“UTCCR”). The CRA aims to modernise, simplify and consolidate key parts of consumer law; it is the cornerstone of an extensive consumer law reform programme.  Anyone acting in a landlord and tenant dispute or drafting tenancy or lease agreement needs to be familiar with its provisions

The old regime

CRA has also partially superseded the Unfair Contract Terms Act 1977 (“UCTA”), which has had little or no relevance to tenants’ right.  UCTA does not relate to any contract so far as it relates to the creation or transfer of an interest in land i.e. leases and transfers;  this carve out is retained in CRA.  (UCTA’s main contribution to landlord and tenant law was in the context setting sums off against rent – the tenant’s efforts to rely upon UCTA to do so failed in Electricity Supply Nominees v IAF [1993] 1 WLR 1059.)

UCTRR was therefore the key legislation under the old regime.  It was initially passed to transpose the requirements of EU directive 93-13-EEC into domestic law.  

UCTRR applies to any contract entered from 1 October 1999 to 1 October 2015.  These provisions will continue to be important for years to come; not only will many ‘old’ contracts remain in existence, but the new law in many respects incorporates the old. UCTRR applies wherever the contract is granted to a consumer by a seller/supplier.  (A consumer is any natural person who is acting for purposes that are outside his trade, business or profession. A seller or supplier is any natural or legal person who is acting for purposes relating to his trade, business or profession, whether publicly owned or privately owned.)

In R (Khatun) v Newham LBC [2004] 3 WLR 417, CA the Court of Appeal decided (confirming the obiter comments of Arden LJ in Starmark Enterprises v CPL Distribution [2002] Ch. 306 at para 70) that UCTRR applied to land transactions including tenancy agreements (including those where the landlord was a local authority).  Laws LJ said (para 77):

“Some tenants or prospective tenants are especially vulnerable people. For most consumers the acquisition of a home, rent or buy, is a key event in their lives.  …  it is commonplace that tenancies are let by landlords who are in business  …  I am unable to perceive any rationale for the exclusion of land transactions  …  Such an exclusion would cut across the grain of the legislation.”

The new regime

CRA re-implements the EU directive that underlays UCTRR and introduces enhanced levels of consumer protection.  It should be noted that the courts have not yet had to decide whether CRA applies to tenancies and leases, though it is generally understood that they do.  If so, the changes are tenant friendly.

CRA, part 2 applies to consumer contracts (“a contract between a trader and a consumer”) and consumer notices (“a notice to the extent that it (a) relates to rights or obligations as between a trader and a consumer, or (b) purports to exclude or restrict a trader's liability to a consumer, so long as it is reasonable to assume that the notice is intended to be seen or heard by a consumer”) (section 61). 

The expansion of consumer protection to cover notices is one of the important developments of CRA.  It should be noted that ‘notices’ includes formal, technical notices but also “an announcement, whether or not in writing, and any other communication or purported communication.”  Presumably this could apply to any correspondence or signs on the wall – it is a wide definition.

The fairness test

Under regulation 5 of the old regime, the ‘fairness test’ provides that a contract term that has not been individually negotiated is regarded as 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.  A term that is unfair will not be binding on the consumer;  the contract will otherwise bind the parties if it is capable of continuing in existence without the unfair term (regulation 8).

The new fairness test is contained in CRA, section 62 and, while the wording may have changed, the sense of the test remains similar.  Unfair terms of consumer contracts and consumer notices are not binding on the consumer, though the consumer can rely on the term or notice if they so choose;  the contract continues, so far as practicable, to have effect in every other respect (sections 62(1), (3) and 67).  A term may not be assessed for fairness if it specifies the main subject matter of the contract and is transparent and prominent (section 64(1)-(6)).  One significant change is that the new regime applies – at least in theory – to terms that have not been individually negotiated.

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 under the contract to the detriment of the consumer (section 62(4)).  This is to be determined taking into account the nature of the subject matter of the contract, and by reference to all the circumstances existing when the term was agreed and to all of the other terms of the contract or of any other contract on which it depends (section 62(5)).

A consumer notice 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 (section 62(6)).  This is to be determined taking into account the nature of the subject matter of the notice, and by reference to all the circumstances existing when the rights or obligations to which it relates arose and to the terms of any contract on which it depends (section 62(7)).

The requirement of good faith remains undefined by the legislation.

The grey list

The grey list is an indicative, non-exhaustive list of types of term that may fall foul of the consumer protection i.e. potentially unfair terms.  The list is useful both for draftsmen and as a starting point for considering whether any particular term is enforceable or not.  The Office of Fair Trading has issued its own guidance unfair terms in tenancy agreement which is another useful pointer, though the guidance is not binding on a court (Peabody v Reeve [2009] L&TR 6, para 54). 

The old grey list is found in UCTRR, schedule 2, para 1; the new list is in CRA, schedule 2, part 1.  The new grey list includes all the items on the old list, though with different wording in parts.  The grey list has also expanded in certain ways.  Two old items have each been expanded into two items on the new grey list (i.e. para 1(e) old list to paras 5 and 6 new list; para 1(l) old list into paras 14 and 15 new list) and one item is entirely new:

“A term which has the object or effect of permitting the trader to determine the characteristics of the subject matter of the contract after the consumer has become bound by it.” 

The grey list remains the key starting point for a tenant challenging the enforceability of a term in a tenancy or lease agreement.  If the subject term of the challenge does not fit into one of the items on the grey list, then it is correspondingly harder for the tenant to persuade a court to disapply it.

The transparency test

The final key shared characteristic of the new regimes is the transparency test.  While all practitioners and draftsmen should be aware of the need to express themselves clearly, the legislation enshrines this requirement in law.

The old transparency test requires written terms to be drafted in plain and intelligible language (regulation 7).   If it was not, then even a term relating to the definition of the main subject matter of the contract could be assessed for unfairness (regulation 6(2)).  Under the new transparency test, a trader must ensure that a written term of a consumer contract, or a consumer notice in writing, is transparent, which it will be if it is expressed in plain and intelligible language and it is legible (section 68).  Under both regimes, any terms that are ambiguous will be given the interpretation most favourable to the consumer (section 69(1); regulation 7(2)).

The transparency test can involve the court and practitioners in difficult displays of interpretative gymnastics.  The key for practitioners is understanding the basis of the challenge properly. 

An independent duty on the courts?

CRA, section 71 is a new, and rather singular, provision that puts a duty on a court hearing proceedings relating to a term of a consumer contract to:

“consider whether the term is fair even if none of the parties to the proceedings has raised that issue or indicated that it intends to raise it.” 

The duty only arises where the court considers that there is sufficient legal and factual material to enable it to consider the fairness of the term.   It is not clear whether this duty arises before – or unless – it is authoritatively decided that CRA applies to tenancies and leases.

This is a provision that could cause serious difficulties for landlords and their representatives.  Where the tenant is a litigant in person, as is increasing the rule today, then it seems that the landlord’s representatives (particularly meaning counsel) may be under a duty to the court to remind the judge of the consumer protection provisions.  A reluctant or pro tenant district judge also might use section 71 as a pretext to adjourn proceedings.  It might be a ground of appeal that the first instance judge failed to consider the fairness test as he should at first instance.  On the other hand it is such an unusual provision that it may simply be quietly forgotten about.

What seems certain is that section 71 will not make life easier from a landlord’s perspective.

Clearly the provisions of the CRA are something property practitioners cannot ignore.

This article was first published in the Practical Law Property Litigation Blog.