The Law Commission

PART IV

THE CONSUMER APPROACH

Introduction

4.1     As noted in Part III,^[1] a central feature of the provisional proposals made in this project was that reform of housing law should be shaped by what we described as the "consumer approach".
4.2     In the past, housing legislation attempted to protect tenants against the weakness of their bargaining position under unregulated principles of land law and contract by overlaying separate statutory rules on top of the tenancy agreement. Our proposed scheme seeks to create the appropriate levels of protection directly through the terms of the agreement, by subjecting the terms themselves to statutory regulation.
4.3     Two essential principles underpin this approach:

(1) agreements between landlords and occupiers should be more transparent; so far as possible the rights and obligations of both parties to the agreement should be set out there, and should not have to be discovered by reference to supplementary rules in Acts of Parliament, law reports or legal textbooks;

(2) agreements should be fair; there should be a fair balance of rights and obligations on both sides of the agreement, for both landlords and occupiers.

4.4     For some, this will be seen as representing a radical new approach to housing law. In our view, it builds on developments that have already occurred. In particular, the application of the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR)^[2] to rental agreements is now an established part of housing law. The Office of Fair Trading have recently issued guidance on the fairness, or otherwise, of terms in rental agreements.^[3] As might be anticipated, the OFT supported this approach. But there was also broad, if not unanimous, support from a wide range of consultees.
4.5     At the same time, anxieties were expressed about the implications of this approach. Some were concerned about the amount of detail that might need to go into the occupation agreement. It was suggested that not many occupiers would in practice read their agreements from cover to cover. This is a concern we share, and which we suspect cannot be wholly eliminated. Nonetheless, the object of ensuring that parties could potentially understand their relationship from a single document was welcomed. It was also noted that the prospective use of the "model agreements" we propose would increase the similarity between occupation agreements. This would make it much easier for housing advisers – whether for landlords or occupiers – to give advice about the parties' rights and obligations.
4.6     One or two respondents wondered whether the analogy between occupation agreements and other forms of consumer contract was as close as we had suggested. They observed that, unlike the position with other consumer contracts, the residential occupier could not easily go to another supplier to purchase housing goods or services, particularly in areas of the country where there remained significantly high demand for housing and shortage of supply. Our response is that one of the justifications for regulatory intervention to protect the consumer arises where suppliers of services are able to use their market power to impose possibly unfair terms on consumers. Our project seeks to create a fair balance of rights and obligations.
4.7     Some noted that, of itself, a consumer approach would not necessarily result in any realignment of the power imbalance that exists in the landlord-occupier relationship.^[4] While this may be true, we think that we need to create an appropriate legal framework for the residential-rental relationship. We can then consider the appropriate mechanisms for encouraging good practice and discouraging inappropriate behaviour (on the part of occupiers as well as landlords), which can be built on this foundation.^[5]

Implications of the consumer approach

4.8     The adoption of the consumer approach has a number of important implications, which need to be spelled out clearly at the outset.

The focus on the contractual agreement

4.9     First, in making our proposals for the reform of housing law, we want to move away from the approach adopted hitherto that the right of an occupier to occupy a home should depend on the grant of an estate in land (a leasehold interest) however notional.
4.10     In the past, much protective legislation in the housing context has only been triggered where there was a tenancy, not where there was a licence. This generated much litigation, particularly as the successful creation of a licence would take the agreement outside the scope of the statutory schemes.
4.11     For the purpose of the new scheme, we seek to ensure that this historic distinction between a lease and a licence will no longer be of any importance.^[6] We think that it was not easy for people – either landlords or occupiers – to understand. Linking rights to occupy to contractual agreements will be more comprehensible. We received considerable support for this from consultees.

Model agreements

4.12     Secondly, the UTCCR currently provide that terms prescribed by statute are outside the scope of the UTCCR.^[7] They are, by definition, "fair" within the meaning of the regulations. We recommend that the Secretary of State should have power to prescribe model agreements, which will be found in secondary legislation. We expect that the Secretary of State will ensure that, both as regards the drafting and as regards the layout, these model agreements will conform to the principles of fairness and transparency.
4.13     The question of whether or not occupation agreements are UTCCR compliant is currently a matter of considerable confusion and uncertainty for landlords. One of the great advantages of our proposed scheme will be that those who use one of the model agreements can be certain that all the terms in the model agreements will be UTCCR compliant.^[8]

Adapting the principles of the UTCCR

4.14     Thirdly, there are important respects in which, to be effective as regards their application to occupation agreements, it will be necessary to adapt the principles of the UTCCR so that they are effective in the context of occupation agreements.

Negotiated terms

4.15     One of the current features of the UTCCR is that the principles of fairness and transparency in the regulations extend only to those terms in the contract that have not been negotiated between the parties. We recommend that these principles should cover individually negotiated terms in occupation agreements as well.^[9] We do not think that this represents a major shift in the policy of housing law, which has always been to try to ensure that there is fairness in the legal rights and obligations of the parties; we merely seek to achieve this objective by a different legislative route.
4.16     Naturally, the degree to which a term was freely negotiated will be a factor in the assessment of the fairness and transparency of the particular term. We anticipate that individually negotiated terms will more readily pass the requirement of good faith. It will be easier to show that any imbalance they create is not adverse to the occupier.
4.17     These changes will require a degree of public education when the new scheme is introduced, not only for landlords and tenants, but also for those bodies involved in enforcement of consumer law. They may also involve extra enforcement work for those bodies.^[10] But we do not regard these problems as insuperable.
4.18     The categories of term we anticipate being included in occupation agreements are discussed in Part VIII.

Key terms and core issues

4.19     One feature of the UTCCR is that certain terms relating to what are usually referred to as "core" issues, are exempt from the fairness requirements of the UTCCR, so long as they are transparent. We wish to limit this exemption in relation to housing agreements. We shall therefore recommend that one of the components of our occupation agreement will be "key" terms. The exemption from fairness permitted by the UTCCR will apply only to key terms that are also core issues. Other terms which might be regarded as relating to a core issue will not be exempt from the UTCCR, unless they are included within the statutory model agreements. This will enhance for landlords the attractiveness of using the model agreements, the terms of which will be UTCCR compliant. We discuss this further below in Part VIII.

The status of the contracting parties

4.20     At present, the UTCCR apply to "sellers or suppliers" and "consumers".^[11] In relation to agreements covered by our new scheme, we recommend that the UTCCR should be modified to make it clear that this applies to all landlords and occupiers. This will mean that all occupation agreements are covered, irrespective of the "supplier" or "consumer" status of the landlord or occupier.
4.21     As is well known, most private landlords rent only a very small number of properties. We received representations that they should not be brought into our proposed scheme. It was argued that some might innocently or accidentally find themselves subject to agreements covered by our new scheme. We had some objections from small landlords both to this proposal and to the proposal to impose sanctions for failure to provide a written agreement even where the occupier has not asked for one.
4.22     However, many other respondents argued that one of the challenges of the new regulatory framework was to ensure that small landlords better understood the obligations and rights they were taking on when they entered occupation agreements. We had representations from organised groups of professional landlords complaining about unfair competition and bad publicity generated by amateur landlords who do not do the job properly. Equally, it has been put to us that "hobby" landlords frequently merely need help in understanding how they should perform their role, and we believe that our model agreements will provide them with assistance here.
4.23     We have no wish to penalise unnecessarily those who make innocent mistakes. But we do believe that anyone renting out property as someone else's home should take the matter seriously enough to ensure that they are acting properly. In any event, the UTCCR do not impose criminal sanctions. They merely require landlords to use fair and transparent terms. This does not seem a disproportionate burden to impose on someone who has contracted to provide a home for another.
4.24     Any potential prejudice to the innocent non-professional or accidental landlord, which we think is small, is outweighed by the advantages of a general scheme which is landlord-neutral, and where agreements are subject to the fairness and transparency of the UTCCR. In any event, the ready availability of statutory model agreements will make life very much easier, particularly for the "hobby" landlord. They have nothing to fear from our proposals.

Structure and language of occupation agreements

4.25     A very important consequence of the "consumer approach" is that careful attention must be given to both the structure of occupation agreements and the language used in them. We recommend that the Secretary of State is given power to make regulations on both of these matters.

Note 1    Para 3.2.     [Back]

Note 2    SI 1999 No 2083.    [Back]

Note 3    Office of Fair Trading 381 (March 2003).    [Back]

Note 4    For a critique of this approach, see Susan Bright, “A Consumer Perspective in Housing Law: Rhetoric or Reality?” unpublished paper presented at the Socio-legal Studies Association Conference, Nottingham 2003. Her complaint, in essence, is that we have not taken the implications of this approach further; in part at least some of her criticisms may be addressed in phase 2 of the project, assuming that it gets the go-ahead.    [Back]

Note 5    We anticipate that this will be a key part of Phase 2 of the project.    [Back]

Note 6    This aspect of the practical significance of the distinction fell away with the introduction, by the Housing Act 1988, of the assured shorthold tenancy, with market rents and limited security of tenure. The distinction will remain of significance in relation to the acquisition of the landlord’s interest by third parties even under our scheme: see para 3.103 above.    [Back]

Note 7    UTCCR Reg 4(2)(a).    [Back]

Note 8    Any amendments made by the parties, or other additional negotiated terms must, on normal principles, be fair and transparent.    [Back]

Note 9    The Law Commission has provisionally proposed a similar change in the context of its major review of UCTA and the UTCCR. See Unfair Terms in Contracts: A Joint Consultation Paper (2002) Consultation Paper No.166; Scottish Law Commission Consultation Paper No119, paras 4.42 – 4.54.    [Back]

Note 10    It might be that after implementation it became clear that enforcement of the regulations in respect of housing agreements would be more efficient if local housing authority staff were able to take on this work in conjunction with their regulatory work on stock other than their own. The OFT could recommend adding local housing authorities to the list of “qualifying bodies’” in Schedule 1 of the Regulations.    [Back]

Note 11    UTCCR Reg 4(1). “Seller or supplier” is defined as “any natural or legal person who…is acting for purposes relating to his trade, business or profession…”: ibid, Reg 3(1).    [Back]