Rented housing comprises a significant part of the housing market in
Tenancy agreements in this sector have the potential to last for long periods. During that time, conditions may change profoundly. Section 103 of the Housing Act 1985 empowers local authorities to vary the terms of periodic tenancy agreements following consultation with their tenants. Tenants who object to any variations made by the landlord can serve a notice to quit terminating their tenancies without being affected by the variation.
In The Governors of Peabody Trust v Reeve [2008] PLSCS 157 a clause in a tenancy agreement attempted to import the provisions of section 103 into agreements made by the Trust. The Trust argued that the clause had been included in its tenancy agreements because RSLs have large numbers of properties and need to be able to make unilateral variations to tenancy agreements to manage their housing stocks. It said that it wanted to vary its tenancy agreements to include service charge provisions to enable it to recoup service charge expenses of approximately £1m per annum from 10,000 tenants, and that it would be impossible to enter into bilateral variations with all of them.
None the less, the High Court ruled that the clause was ineffective for two reasons. The judge applied the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR). Regulation 7 provides that, if a term is unclear, the interpretation that is most favourable to the consumer prevails. The judge accepted that a right of unilateral variation would be useful, but decided that the clause in the Trust’s tenancy agreement was irreconcilable with the provision that preceded it (which provided that the terms could only be altered by written agreement between the parties). Consequently, there could be no variation of the tenancy agreement without the written agreement of the tenant.
The judge also decided that the clause was ineffective because it was in breach of regulation 8 of the UTCCR, which applies where consumer’s contract on a supplier’s standard terms without negotiation. The clause caused a significant imbalance between the parties’ rights and obligations, to the detriment of the consumer, contrary to requirement of good faith.
The court was in no doubt that there was an inherent imbalance in the relative bargaining power between the parties. The landlord had reserved the right to impose material changes, but the tenant could not and, given the relatively low cost of housing provided by RSLs, it was unrealistic to expect the tenant to serve a notice to quit. The clause was so sweeping and one-sided that it was unfair.
RSLs should take careful note of the judge’s warning. To satisfy the UTCCR, a unilateral variation clause will need, at a minimum, to take full and proper account of the Office of Fair Trading’s guidelines for tenancy agreements.
Allyson Colby is a property law consultant
