Is a user covenant that requires premises to be used as a single private dwelling house “in the occupation of the lessee and his family” (which prevents subletting to unrelated third parties) an unfair contract term for the purposes of the Unfair Terms in Consumer Contract Regulations 1999 (UTCCR)?
The regulations have been superseded by the Consumer Rights Act 2015, but it applies to contracts made on or after 1 October 2015 and Jones v Roundlistic Ltd [2018] EWCA Civ 2284 concerned a lease granted while UTCCR were in force.
The lease in question was granted pursuant to the Leasehold Reform, Housing and Urban Development Act 1993 to extend the term of an earlier lease (which pre-dated UTCCR). And, because section 57 of the 1993 Act requires any new lease to be on the same terms as the existing lease, the Upper Tribunal ruled that UTCCR were inapplicable because they do not apply to contractual terms that reflect mandatory statutory provisions: see regulation 4(2).
The Court of Appeal disagreed. It ruled, by a majority, that regulation 4(2) must be strictly construed and applies only where a statute prescribes contractual terms (but not necessarily word-for-word) because a legislator/regulator must be taken to have given proper weight to consumer protection when prescribing terms to be included in contracts: RWE Vertrieb AG v Verbraucherzentrale Nordrhein-Westfalen EV [2013] EUECJ C-92/11, [2013] 3 CMLR 10.
The court contrasted contract terms required by legislation itself and contract terms that reflect an earlier contract between the parties, whose content has not been the object of any legislative consideration or imposition. The lease extension fell into this last category. So regulation 4(2) did not apply.
But was the covenant unfair? The unfairness of a term is to be assessed at the time of the contract. And a contractual term that has not been individually negotiated will be considered unfair if “contrary to the requirement of good faith, it causes a significant imbalance in the party’s rights and obligations arising under the contract, to the detriment of the consumer”.
There was a significant imbalance between the parties’ rights and obligations in this case. The upper-floor flat should have been sold subject to the same user covenants that the tenant of the ground floor flat had signed up to. But the landlord had been unable to find a buyer for the flat upstairs and had let it to short-term occupiers instead, thereby creating a contractual imbalance between the parties because the user covenant in the ground floor lease prevented the tenant of the ground floor flat from doing this too.
But the user covenant had not been included in the extended lease of the ground-floor flat “contrary to the requirement of good faith” because section 57(6)(b) of the 1993 Act enables parties to ask the tribunal if it would be unreasonable to carry forward an existing term due to a change in circumstances that affects its suitability. The tenant could have taken advantage of this provision – and its decision not to do so indicated that the term would have been acceptable to it, had it been individually negotiated by the parties.
Allyson Colby, property law consultant