Sunday, November 1, 2009

Tenancy Agreement Reminder in OFT Victory

Earlier this year the High Court ruled that certain terms and conditions used by a letting agent in its contracts with landlords were unfair.

The terms in question allowed the letting agent to charge repeat renewal commission when tenants stayed on in a rental property after the initial fixed period tenancy had expired, even if the firm had played no part in persuading the tenant to stay, and did not collect the rent or manage the property. They also required landlords to pay commission to the letting agent even after it had sold the property, and were allowed to receive a full estate agents' commission for sale of the property to a tenant.

Although the OFT was on this occasion jumping to the defence of landlords, it is equally concerned that landlords do not themselves impose unfair terms on tenants.

Tenancy agreements are contracts between a landlord and a tenant, or tenants. They set out the terms under which the landlord lets and the tenant rents the property.

Landlord and tenant are not entirely free to agree whatever terms they wish - or at least the terms included will not necessarily be enforceable in every respect.

Assured shorthold tenancy agreements - the default type of agreement - are subject to Housing Act and Common Law constraints. No matter what the tenancy agreement says, for example, landlords cannot impose more stringent notice periods than required by legislation, or throw off their duty of care towards tenants.

Neither can landlords enforce terms added into an agreement which are 'unfair' under the Unfair Terms in Consumer Contracts Regulations.

In fact the Office of Fair Trading has long ago issued guidance on the implications of these regulations for tenancy agreements. In its Guidance on unfair terms in tenancy agreements, the OFT warns that the relationship between the regulations and landlord and tenant law is complex. The guidance reflects its views and sets out the basis on which it is likely to take enforcement action but 'it is for the courts to decide whether any term is unfair'.

The regulations say that to be enforceable most terms that have not been individually negotiated must be fair to both parties - terms that set the rent or describe the main essence of the agreement and are central to it are not subject to the 'fairness' test. However, all the terms of the tenancy agreement must be in 'plain and intelligible language'.

'If a term is illegible or hidden away in small print as if it were unimportant, the test of fairness is still likely to apply', says the OFT.

'In assessing fairness, we take note of how a term could be used. A term is open to challenge if it is drafted so widely that it could be relied on in a way to harm consumers. It may be considered unfair if it could have an unfair effect, even if it is not at present being used unfairly in practice and there is no intention to use it unfairly. In such cases landlords could achieve fairness by redrafting the term more precisely, so that it reflects their practice and intentions'.

The OFT says it is likely to object to disclaimers that try to exclude or limit liability for breach of 'implied' terms.

Also, wwe object to terms allowing landlords to seek to deprive tenants of compensation in any circumstances in which they would normally be entitled to it by law.

'General disclaimers such as those stating that visitors enter premises 'at their own risk' could have the effect of excluding liability for death or personal injury. Even if the landlord does not intend to use the term in this way, it may still be unfair.

Such terms may be acceptable if they are qualified so that liability for loss or harm is accepted if the landlord is at fault, or is disclaimed only where someone else, or a factor outside anyone's control, is to blame'.

And the OFT says it would regard any term having the effect of transferring landlords' statutory obligations to their tenants as being unfair. So landlords cannot, for example, make their tenants responsible for undertaking annual gas safety checks.

It also has 'concerns' over terms that have the object or effect of protecting landlords from liability to tenants for defects in the premises let to them, for which the landlord would otherwise be liable. 'We also regard terms that give incomplete information about the landlord's repairing responsibilities as potentially unfair, because they can be misleading'.

And the OFT 'objects' to terms that require the tenant to carry out repairs that are legally the responsibility of the landlord. 'These terms are void, unenforceable and misleading'.

For a contract to be considered balanced, each party's rights must remain enforceable against the other for as long as is reasonably necessary. Where the parties have not agreed a definite period, the law allows a reasonable time for making claims.

'We would object to a term that imposes a shorter time than is reasonable, putting tenants at risk of losing their rights to redress before they would normally lapse by law'.

The OFT is also likely to object to terms that appear to allow landlords to refuse to carry out repairs if tenants do not notify them of damage to the property immediately or within an unduly short period of time. 'Landlords are not entitled to avoid their legal responsibilities towards tenants who are unable to notify them or their agent of a need for repairs immediately for reasons beyond their control and involving no fault on their part'.

Other terms considered unfair by the OFT include an 'excessive' right for the landlord to enter the rented property. 'Under any kind of lease or tenancy, a landlord is required by common law to allow his tenants "exclusive possession" and "quiet enjoyment" of the premises during the tenancy.

In other words, tenants must be free from unwarranted intrusion by anyone, including the landlord. Landlords are unfairly disregarding that basic obligation if they reserve a right to enter the property without giving reasonable notice or getting the tenant's consent, except for good reason'.

The regulations say that unfair terms are not binding on consumers. It is open consumers themselves to challenge terms they consider unfair.

Under the Regulations the OFT has a duty to consider any complaint it receives about unfair standard terms. Where the OFT considers a term to be unfair, it has the power to take action on behalf of consumers in general to

Any tenant who believes the terms included in a tenancy agreement are unfair can contact the OFT or their local trading standards service.

If you require an up to date and reliable tenancy agreement go to where you find a selection of tenancy agreement templates, that can be tailored to meet exact requirements.

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