When do unfair terms apply to residential tenancy agreements?
Assured shorthold tenancy agreements are subject to the Unfair Terms in Consumer Contracts Regulations 1999.
This law applies to residential tenancy agreements where:
- the tenant is a consumer (i.e. not a company or a person acting in the course of business); and
- the landlord uses a letting agent to manage the property or he or she lets the property on a commercial basis (an exception is if the landlord is renting his or her own home).
What is an unfair term?
We explain the Regulations as they apply to any type of consumer contract in more detail in unfair terms in consumer contracts.
To summarise, the Regulations state that the consumer is not bound to any term in a contract with a supplier that is 'unfair'.
A term is deemed to be unfair if:
- it removes or reduces the tenant’s rights given by statute law
- it significantly reduces the tenant’s rights under common law
- it is contrary to the requirement of good faith
- it imposes a penalty or charge on the tenant that is not reasonable in amount or not incurred reasonably
- the rights of the tenant are constrained by the wishes of the landlord without reasonable justification
It is the landlord who is responsible for ensuring that there are no unfair terms in the agreement.
How to avoid creating unfair terms
The following are some simple points to consider when drawing your agreement:
Use plain English within the tenancy agreement - language that can be understood by the tenant. Avoid using unusual language or complex sentence construction. If your tenant asks you what something means (provided it is before signing the contract), it might be a good indicator that your agreement is not clear enough. However, some words in a tenancy agreement have specific legal meaning and should not be changed.
Make your agreement easy to read: print it on plain white paper and use a large clear font face. Avoid using coloured text, unnecessary pictures or logos, or unusual fonts.
Include all terms within the main document. Do not refer to other documents or use small print to add in a term at the end.
Do not use exemption clauses or clauses that aim to reduce your liability as a landlord. They often cause misunderstanding.
Common unfair terms
The regulations do not cover core terms, which in the case of a tenancy agreement would be those:
- setting the rent
- defining the property to be let
However, the following are terms that landlords often alter and in doing so, make unfair.
The tenant has a right to have ‘exclusive possession’ and ‘quiet enjoyment’ of the premises during the tenancy.
Tenants must be free from unwarranted intrusion by anyone, including the landlord.
If the tenancy agreement allows the landlord to enter the property without the tenant’s consent, except for good reason (such as in an emergency or to inspect the property on reasonable notice), the term may be unfair.
Rent review clauses
A landlord is not allowed to increase the rent during the fixed term period of the tenancy (usually the first six months).
If the tenancy agreement does not include a rent review clause, then the landlord can still ask for the rent to be increased. However, the tenant can refuse, and the only action the landlord can take is to end the tenancy by giving the tenant notice to leave.
If the tenancy agreement includes a rent review clause, then the tenant has already agreed to increases. However, they must be fair.
The following reasons for rent increases would be fair:
- increase in line with inflation
- a pre-agreed increase as stated in the tenancy agreement
- a price variation clause, outside the landlord’s control, such as an increase in council tax
The tenant must be given sufficient notice of the increase, both in order to have enough time to provide the money, or to decide not to agree to the increase and end the tenancy agreement. The landlord should give at least one month's notice.
An alternative to using a rent review clause would be to use a shorter term agreement, end the tenancy under the old terms and give the tenant the choice of accepting a new tenancy including rent and any other terms as offered, or vacating at the end of the prior one.
Landlords cannot exclude or limit liability
Exclusion clauses are not looked upon favourably with either the Office of Fair Trading or the courts.
Any term which seeks to reduce or exclude liability of any kind is an unfair term. A term that excludes liability for death is unfair.
Examples of unfair exclusion clauses:
a landlord has a duty of care to keep tenants and visitors safe, and cannot contract out of this. This is especially so for the responsibility for personal injury or death. Although the landlord’s duty of care is not to keep the building safe, he should always maintain common areas of the property
terms that excludes or limits liability “as far as the law permits”, or “save as may be prohibited by statute” are also unfair. As well as unfair, they are not clear – the average tenant is not going to have an understanding of the statute that relates to tenancy agreements
- A landlord cannot exclude or limit liability for repairs which by law, he should carry out, nor can he charge ‘call out’ charges in order to repair something that is by law, his responsibility
Excluding the right of 'set-off'
'Set-off' means that a tenant is allowed by common law to make necessary repairs to the property and then “set off” the associated costs against their rent payments. A clause that limits this is unfair.
Tenants should exercise the rights of set off carefully. Tenants who intend to set off costs should seek the advice of a lawyer.
Changing what is being let
A landlord cannot change what was agreed as the letting. This includes both space and contents.
So a landlord cannot decide that he wishes to store his possessions in the attic or that he wishes to have possession back of furniture in the property, if at the time the agreement was signed, these were let to the tenant.
Terms that give the landlord the right to change to change what is being let would certainly be construed as unfair.
A term that commits the tenant to pay unnecessary and unreasonable costs is unfair.
These costs might include cleaning charges when the property was vacated. The tenant must, by law, leave the property in the same state he found it in. It must be to the same standard of cleanliness. However, he cannot be obliged to pay for professional cleaners to clean the property or to leave it in a better state than when he moved in.
Other fees and penalties such as an administration fee and excessive insurance charges are unfair.
Goods belonging to the tenant
The landlord is not allowed to enter the property and take goods belonging to the tenant in lieu of unpaid rent. A term allowing this would be unfair.
Additionally, any goods left behind by the tenant, should be kept by the landlord where reasonable. The landlord should seek out the tenant and deliver the goods back to them. The landlord should not have to pay for delivery costs. The landlord may sell the goods if the tenant cannot be found after a reasonable search.
How a tenant may challenge an unfair term
A tenant may complain to the local Trading Standards Office about an unfair term in their tenancy agreement. Trading Standards in turn refer it to the Unfair Contract Terms Unit at the Office of Fair Trading.
The OFT has issued a guide and other bulletins that can be downloaded for free.
A term can be challenged as being possibly unfair if it is difficult to understand by a lay person or doesn’t use plain language that is easy to understand. If a term is found to be unfair, it doesn’t invalidate the entire contract, but rather just the clause itself, which becomes unenforceable.
Including unfair terms
A less scrupulous landlord may include unfair terms knowing that they are likely to be void. If the tenant is unaware of unfair terms, or is unwilling to challenge them then the landlord is likely to get his or her own way.
There is nothing to prevent unfair terms from being included in a tenancy agreement, but a landlord should be aware that just because it is included, doesn’t mean it is enforceable.
Further information and useful documents
If you are a landlord or an agent, we provide many types of tenancy agreement, including ASTs, without unfair terms within them. Download one of our assured shorthold tenancy agreement templates.