Unfair terms in Consumer Contracts

Article reference: UK-IA-SGA09
Last updated: September 2022 | 7 min read


The Unfair Terms in Consumer Contracts Regulations 1999 ('UTCCR') aim to protect consumers against unfair standard terms in standard term contracts.

You need to know about them only if you present terms and conditions to a customer who is a consumer and you do not expect them to negotiate something different.

Your customer is unlikely to know about unfair terms

As a trader, we can tell you that very few consumers are aware of these regulations and they are very rarely enforced. The most likely situation in which you will meet them would be if you hear from your customer’s solicitor.

But while the risk of being discovered to be non-compliant is very low, the penalty if your default is discovered, could be very high.

The Regulations are policed by the Office of Fair Trading ('OFT'). A single consumer complaint letter will probably be passed to your local trading standards department. However, if there is an issue that affects a large number of consumers, you could face heavy penalties and the likelihood that some solicitor will advertise for clients who have been subject to the same unfair terms nationwide.

So we really need to differentiate between the effect on your business of a simple error, like setting out your terms and conditions in text so small that no-one can read it, on the one hand, and telling thousands of people that they have no recourse when you sell bad financial advice, on the other hand.

The OFT and certain other bodies can take action to prevent the use of unfair terms, but cannot intervene in a private dispute on an individual's behalf. Consumers can also rely on the Regulations in a dispute with you. That means, if you fail to comply, even in a small way, your customer is likely to win the argument.

What is an unfair term?

Simply, the UTCCR say that a consumer is not bound by a standard term in a contract with a seller or supplier if that term is unfair.

To understand this, we need to know a few definitions:

  • A seller or a supplier is any person or organisation acting for the purposes of their business.
  • Business includes any trade or profession, as well as governments and other public bodies.
  • A consumer is an individual not acting for the purposes of his or her business or profession.
  • Standard terms are those devised by a business in advance - those not individually negotiated with the consumer. The Regulations do not apply to any term that can be shown to have been individually negotiated.
  • Terms do not have to be in writing, but are often found in the 'small print' on the back of order forms, brochures, bills, and so on. They may also be implied from marketing materials.

When is a term unfair: test of fairness?

When deciding whether a term is unfair, the court implements the 'test of fairness' and the 'plain language' requirement.

A standard term is unfair if it creates a significant imbalance in the parties' rights and obligations under the contract, to the detriment of the consumer, contrary to the requirement of good faith. Good faith simply requires businesses to deal fairly and openly with consumers.

It follows that a terms and conditions document, in plain English, will always protect you better than a document drawn in legalese and containing jargon.

The principle of fairness must be reflected in the way a consumer contract is drawn. Standard terms may be used to protect commercial interests, but the document must also take account of the interests and rights of the customer or client. The terms must be simple, fair, comprehensible, appropriate and not excessive.

What this means is illustrated by examples of types of unfair term listed in Schedule 2 to the Regulations (see below).

In assessing the fairness of a term, the following must be taken into account:

  • the nature of the goods or services
  • the circumstances surrounding the making of the contract
  • the other terms in the contract
  • the content of any other contract that is linked to the one under consideration

Use of plain language

A standard term must be expressed in plain and intelligible language.

A term is more likely to be considered unfair if it is poorly drawn and therefore puts the consumer at a disadvantage because he or she is not clear about its meaning.

Terms exempt from the regulations

Most standard terms are covered by the UTCCR. A contract is excluded from the Regulations if:

  • it reflects provisions that by law have to be included in contracts or are explicitly allowed;
  • it has been individually negotiated;
  • it is made between businesses (because it is presumed that businesses have an equal standing to begin with);
  • it is made between private individuals (for the same reason as above);
  • its subject matter is such that it is not a contract a person makes as a consumer, for example: employment, succession rights, family law or setting up a business;
  • it was made before 1995; or
  • it merely sets the price of, or defines the product or service.

Terms in a consumer contract that set the price or define the product or service being supplied are deemed to be core terms of the contract, and are exempt from the test of fairness as long as they meet the plain language requirement.

Frequent unfair terms

Schedule 2 to the Regulations lists a number of unfair standard terms that are frequently found. The list is not exhaustive. However, a term is not necessarily unfair just because it appears in the list.

There are more familiar terms that are not on the list, yet which are often cited as being unfair. They are terms that:

  • mislead the consumer about the contract or the consumer's legal rights
  • deny full redress if things go wrong
  • tie the consumer into the contract unfairly
  • release the business from performing its obligations
  • cause loss of prepayments made by the consumer if the contract is cancelled
  • enable the business to vary its terms after the contract has been agreed
  • allow the business to impose unfair penalties on the consumer

A term is unfair: what is the result?

If a consumer argues that a term is unfair but you disagree, they have recourse to the County Court. If the court finds in favour of your customer, you may not rely on that term, but the rest of the contract is binding, unless the court considers it to be unworkable without the unfair term.

The Office of Fair Trading's powers

The OFT determines whether a term is or is not unfair or whether any individual consumer is entitled to compensation.

It has a duty under the Regulations to consider any complaints about the unfairness of a contract term and if it believes that a term is unfair, it has powers to ask a court for an injunction to prevent it being used or recommended for use. It may also seek a court order under the Enterprise Act, particularly where there are other breaches of consumer law as well as use of unfair terms.

However, only the courts can finally decide whether a term is or is not unfair.

The OFT negotiates with traders, and with trade associations and other organisations that recommend model terms to their members, to secure the revision or deletion of unfair terms, and may accept suitable undertakings given to the OFT instead of taking court action.

Yours terms and conditions: do they comply?

Here are some tips to ensure your business terms comply:

  • Check what legal rights consumers have, and avoid trying to get round them or cutting back on them.
  • Don't just copy a competitor's contract.
  • Write in plain English.
  • Avoid jargon or Latin terms.
  • Use headings, captions, boxes etc to divide the information and make it easier to read.
  • Avoid long sentences or paragraphs.
  • Important terms should be given sufficient prominence, for instance by being put first, or using large or bold print.
  • Avoid using very small print.
  • Avoid printing contracts on flimsy or coloured paper and/or using faint in.

Further information and documents

Another body of law that governs consumer transactions is the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, which replaces older distance selling law. We recommend that you read our introduction to the Consumer Contracts law to see if it affects your business.

We also provide information on specifically unfair terms in contracts for package holidays.

If you think you may need to change your customer terms and conditions on your website, then you might be interested in looking at our collection of website T&C templates for different website business models.

If you have any questions about this article, please do contact us and ask.

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