An unfair term in a contract is a term that goes against the principle of good faith which results in an imbalance between the rights and obligations under the contract to the detriment of the consumer.
The Unfair Terms of Contract Regulations 1999 (the Regulations) is a regulation that implements a European Council Directive for the purpose of coordinating the laws and regulations of the member states that relates to unfair terms in contracts between a business seller or supplier and a consumer.
A seller is a person who sells goods and contracts with the consumer in relation to his business.
A supplier is a person who supplies goods or services and contracts with the consumer in relation to his business.
A consumer is a natural person who in making a contract is acting for purposes outside of his business.
The Regulations apply to a term of a contract between a seller or supplier and a consumer that was not negotiated between the parties. Usually the consumer in such contracts is required to sign the supplier’s or seller’s standard term contracts.
The Regulations relate primarily to consumer supply contracts. The following contracts are excluded from the Regulations:
It is a requirement of the Regulations that written consumer contracts must be in plain and intelligible language. If there is uncertainty as to the meaning of a contractual term the interpretation that is beneficial to the consumer should be adopted.
The following terms are excluded from an assessment of fairness under the Regulations:
Contractual terms that define the main subject matter of the agreement (the core bargain)
Contractual terms that relate to the adequacy of the price or remuneration in relation to the agreement
If a term of a contract is determined by the Court to be unfair it will not be binding on the consumer. The Contract will continue to be valid if it is capable of continuing without the unfair term.
The Court of Appeal in the landmark case of Office of Fair Trading v Foxton  has ruled that terms in a tenancy that are not plain and intelligible and provisions relating to the renewal of commission fees payable by the landlord to the estate agent for finding a tenant where the tenant continues to occupy the property after the initial fixed period in circumstances where the estate agent does not manage the property or persuade the tenant to stay could not escape an assessment of fairness. This is subject to the term of the contract not being apart of the main subject matter of the contract.
The circumstances in which a renewal of commission fees may be deemed unfair are:
Prospect of renewal is subsidiary
Term was hidden away in the document (played no part in the focus of the parties to the contract)
Factors that indicate a core bargain between the parties
Real negotiation between the parties from the outset
Clear disclosure if not active flagging up of the term
A plain and intelligible term
A fairness inquiry will be conducted by the court in claims that have brought as a result of an allegation of unfairness in contractual terms. The Court has ruled that even if the renewal commission was found to have been apart of the core bargain between the parties, it could not escape a fairness inquiry.
As a result of the above ruling by the Court, the Office of Fair Trading will now request injunctions to prevent the use of terms that require a landlord to pay huge amounts of renewal commissions.
The Office of Fair Trading’s chief executive John Fingleton has stated that “the ruling sends out a clear and unambiguous message that businesses offering services need to ensure unexpected or surprising terms are not hidden away in small print.” The Office of Fair Trading has therefore adopted a proactive approach in addressing unfair terms in tenancy agreements that have the effect of ‘trapping’ landlords in agreements that are detrimental to their financial interests.
In another landmark case, Office of Fair Trading v Abbey National PLC  the Supreme Court has ruled that bank charges such as overdrafts are to be excluded from the fairness test under the Regulations. The Supreme Court ruled that there was no principled basis on which the Court could decide that some services were more essential to a contract than others which was inclusive of services that banks offered to their current account customers.
This is a ruling that has come as a shock to consumers who were optimistic about getting refunds on bank charges which averages about £30 if a consumer exceeds his authorized overdraft. This has been seen as an unfair term owing to the fact that the actual cost to the bank for an unauthorised overdraft is about £2.50.
It is hoped that the Office of Fair Trading will work with banks to ensure that consumers receive fair treatment in relation to bank charges.
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