The Law Commission

PART VIII

THE STRUCTURE AND CONTENT OF THE AGREEMENT

Introduction

8.1     Our aim is that the occupation agreement should, as far as possible, provide an accurate statement of the legal relationship between the parties to the agreement, without the need for additional reference to statutory provisions or other sources of law.
8.2     A particular feature of the new scheme is that the grounds on which a landlord may seek possession will operate through the agreement instead of, as currently happens, being a statutory addition to it. This is discussed in detail in Part IX.
8.3     Our proposed Bill will prescribe both the content and form of the written agreement. It will also enable the creation, in delegated legislation, of sets of terms that can be used in default of a written agreement – "the model agreements".
8.4     Most of the required content will take effect as ordinary contractual terms. But some of the content of the agreement will be required for social policy reasons, to provide the occupier and landlord with information about matters that, though not strictly contractual, are nonetheless of crucial practical importance.
8.5     Not all occupiers will read and understand the whole of their agreement; it is likely to be a relatively substantial document. Nevertheless, it will be the reference source from which both landlords and occupiers can find out about their respective rights and duties when questions arise.
8.6     This will be a considerable improvement on the current position where, even if a tenancy agreement sets out the terms accurately and in some detail, neither party can know the full legal basis of their relationship without reference to numerous statutory provisions and other legal sources as well. Furthermore, the harmonisation of agreements implicit in the scheme should make it easier for housing and legal advisers to give advice to both occupiers and landlords.
8.7     One feature of the consumer approach is whether a prospective occupier should be given time to digest the contents of the agreement. We have not recommend that there should be a "cooling off" period as exists in other consumer contract contexts. We anticipate that there will be circumstances in which the parties will, quite properly, want to enter into an agreement speedily.^[1]
8.8     The UTCCR provides an incentive for landlords to allow prospective occupiers time to consider the contract. The precise amount of time will need to be appropriate for the length and complexity of the terms in the agreement.^[2] One factor to be taken into account will be the extent to which the contract deviates from the prescribed model agreements – the greater the deviation, the more time should be given.

The structure and language of the agreement

8.9     As well as specifying the content of the agreement, we recommend that requirements as to the presentation of written agreements should be prescribed. This has been an important feature of existing consumer protection legislation which we want to extend to occupation agreements. This comprises two elements:

(1) the layout of the agreement should, so far as possible, aid comprehension of it; and

(2) the agreement should be drafted in as plain language as possible.

8.10     We recommend that, in drafting the model agreements that will be published in secondary legislation, the Secretary of State should consult widely with the stakeholders in the rented housing sector – both landlords and occupiers.

Content of the agreement

8.11     We recommend that the agreement should be made up of four categories of terms. The first category will be key terms; the second, compulsory-minimum terms; the third, special terms, and, the fourth, other terms, made up of default terms, or terms substituted for them, and any further additional terms required by the parties. The primary object of these requirements is that there should be certainty as to the terms of an agreement, even where they have been inadequately dealt with by the parties.
8.12     We have already noted that the Secretary of State will be required to set out the key, compulsory-minimum and default terms in model agreements.^[3] If a landlord and occupier merely agree a weekly rent for a property and the latter moves in with no further agreement or planning, they will be subject to the appropriate model agreement. The landlord will still be obliged to provide a written statement of the agreement. He can do this simply by issuing a front page, setting out the key terms and any variations of or additions to the compulsory-minimum or other terms, to which the relevant model agreement is then attached.

Key terms

8.13     This category relates to the key terms on those subjects which are essential to the agreement, either because there can be no agreement without them or because they need to be covered in practice, but the contents of which cannot be prescribed in advance.
8.14     The key terms will be:

(1) the name of the landlord and the occupier;^[4]

(2) an adequate description to identify the property subject to the agreement;^[5]

(3) the date on which the occupier can enter into possession;

(4) whether the contract is for an indefinite length of time or is to end on a set date, and if so what that date is; and

(5) the nature, amounts and due dates of the consideration.^[6]

8.15     This basic information is known only to the parties. Thus the legislation can only set down the topics to be covered in the key terms section of the agreement. The model agreement will provide suitable wording, but with gaps to be completed by the parties. If the gaps are not completed, then we recommend that the sanctions for failure to provide a complete written agreement should be applied.
8.16     Any subsequent variation of these key terms should be subject to the terms relating to variation of the agreement.^[7]
8.17     Details of an address for service, a contact address and any agent's details will be dealt with in the compulsory-minimum terms, rather than key terms.

Relationship of key terms with the UTCCR core terms

8.18     Under the provisions of the UTCCR, certain contractual terms, defined in Article 6(2)^[8] of the regulations, are exempt from the requirement that they be fair, provided that they are expressed in plain and intelligible terms. Although the regulations do not actually use the phrase, these terms are generally referred to as "core terms". We had originally thought that what we describe as key terms should also be called core terms, thus indicating that they should fall within the scope of Article 6(2). We have however come to the conclusion, not least in the light of representations made to us by the OFT, that this could lead to confusion. We have therefore decided to describe these terms as key terms.
8.19     All the key terms we prescribe, which are also core terms as defined by Article 6(2), will be exempt from the requirement that they be fair. Any other term, which is not a key term, which might otherwise be regarded as being a core term within the scope of Article 6(2), should be deemed not do so. Thus, any such term would remain subject to the UTCCR principles both of transparency and of fairness.
8.20     For example, a term relating to payment of a deposit, which will not be a key term, will be subject to UTCCR standards, even if, in other contractual contexts such a term might be regarded as a core term. Article 8 of the Directive creating the UTCCR provides that "Member States may adopt or retain the most stringent provisions compatible with the Treaty in the area covered by this Directive, to ensure a maximum degree of protection for the consumer". Thus there will be no breach of the Directive in extending the scope of the regulations in this way, as the result is to give consumers greater protection.

Compulsory-minimum terms

8.21     The second category of terms is made up of those we recommend must be included in the agreement. They will represent a "floor of rights and obligations". In relation to most of these terms, variations will be permitted, though any variation will have to be in favour of the occupier.
8.22     We recommend that agreements should include three broad classes of compulsory-minimum terms:

(1) terms relating to security of tenure and the grounds on which landlords may seek possession against tenants;

(2) terms on matters relating to the operation of the agreement; and

(3) terms on issues currently implied by statute or the common law, for example the landlord's obligation to keep the structure of the building in repair.^[9]

8.23     As noted above, the compulsory-minimum terms will be required to set minimum standards of protection for occupiers and fundamental obligations on landlords. However, where appropriate, we also recommend that terms more favourable to the occupier should be able to be agreed instead of the compulsory-minimum terms. These might include, for example, a term that omits a ground for possession by the landlord or expands the landlord's repairing obligations.
8.24     Model terms will be set out in the model agreements; these will automatically be UTCCR compliant. While a term is capable of variation and is varied, the parties will need to ensure that any terms as varied are still compliant with UTCCR principles by being transparent and fair.^[10]

Terms relating to security of tenure

8.25     We recommend that the compulsory-minimum terms should deal with the ways in which the landlord may terminate the occupation agreement. We seek to bring as many of the existing statutory grounds for possession as possible under a general ground of possession for breach of the agreement. In addition, we shall provide terms to enable a landlord under a type I agreement to seek an order for possession on "estate management" grounds. We shall also provide terms to enable landlords under type II agreements to seek a mandatory order for possession on the notice-only ground and for serious rent arrears. The details of these terms are discussed below in Part IX.^[11]

Terms relating to the operation of the agreement

8.26     We recommend there should be a number of compulsory-minimum terms relating to the regulation of the relationship between the occupier and landlord. Under this head we include terms that deal with matters relating to adding a party to the agreement, the ability to take in a lodger, transferring rights of occupation to another, and succession to rights of occupation. The details are set out below in Parts X to XIV.

Terms relating to issues implied by statute or common law

8.27     Finally, we also have to make provision for those terms currently implied by statute or common law into residential tenancies. The most important of these are the obligations imposed by statute on the landlord relating to keeping the premises in repair;^[12] and the common law duty on the landlord to ensure that the occupier has "quiet enjoyment" of the premises. The parties will not be able to contract out of these terms, though it may be possible to vary these terms in favour of the occupier. We discuss these in the following paragraphs.
8.28     Since the focus of this project was primarily on the status and security of residential rental occupiers, we did not consult on the specific details of these terms. Indeed, to have done so would have made an already very substantial project even greater. However, for the scheme to be able to come into effect, we need to make provision for these important terms.
8.29     Our basic approach is to recommend that all those terms and conditions currently implied into tenancy agreements either by statute or by the common law should be adapted for and brought into the new scheme as compulsory-minimum terms. We accept that these terms and conditions may need further revision in the light of experience of the new scheme. We therefore make these recommendations on the basis that this class of compulsory-minimum terms should be regarded as an interim statement, pending any more fundamental revision of them.

(1) Landlord's address for service and agent's details

8.30     Although the identity of the landlord must be one of the key terms, we recommend that there should be a compulsory-minimum term that requires additional information about the landlord and their agent to be provided to the occupier. This will include information about an address in England and Wales at which the occupier may serve notices on the landlord. The term should prescribe that this information should initially appear on the face of the written agreement. Any later changes will be notified in writing to the occupier. If the landlord fails to notify the occupier of such changes, then the occupier will be entitled to rely on the original information, so that service at the original address will be deemed effective.
8.31     The present law prescribes criminal sanctions for failure to provide this information. We do not think that criminal sanctions are either appropriate or effective; we do not recommend that these are brought into the scheme we are proposing. Failure to provide this information, either at the outset of the agreement or after any later variation, will render the landlord liable to the same sanctions that applies to other failures to provide the agreement.^[13]

(2) Repairs, fitness and improvements

8.32     In 1995, the Law Commission produced a detailed report, with a draft Bill, entitled "Landlord and Tenant: Responsibility for State and Condition of Property."^[14] The recommendations in that report complement the consumer approach we advocate in this report. The degree to which Government will adopt our earlier recommendations is still not settled. Should Government wish to implement them, this will have the inevitable consequence of changing the current law.

Repairs

8.33     The most important current provision on repairs is section 11 of the Landlord and Tenant Act 1985. It imposes repairing duties on a landlord by statutorily implying a term into tenancies out of which the parties cannot contract. It is very close to our model of a compulsory-minimum term. It applies to lettings of dwelling-houses, which are premises let wholly or mainly as a private residence, for less than seven years.^[15]
8.34     It requires the landlord to keep in repair the structure and exterior of the dwelling-house, and any part of the building in which the landlord has an estate or interest if the tenant's enjoyment of the dwelling-house or any defined common parts is affected. It also requires the landlord to keep in repair and proper working order the installations in the dwelling-house for supply of water, gas and electricity, and for sanitation and space and water heating.
8.35     The landlord's obligation does not extend to reinstatement after destruction or damage by fire, flood and similar occurrences; matters covered by the tenant's common law duty (or any express covenant) to use the property in a tenant-like manner; or anything which the tenant is entitled to remove from the dwelling-house.
8.36     Although the parties cannot contract out of this term, exclusion of it is possible by county court order. Without such order, the following are void: (a) all exclusions or limitations on the landlord's obligations or the tenant's immunities; (b) any authorisation of forfeiture or the imposition of a penalty, disability or obligation on a tenant who seeks to enforce or rely on those obligations or immunities; and (c) any tenant's repairing obligations covering the same area.^[16] We understand that orders seeking exclusion of the term are rarely sought in practice.
8.37     There is a corresponding right for the lessor (or any persons authorised by him in writing) to enter the premises at reasonable times of the day and on giving 24 hours notice in writing to the occupier, in order to view their condition and state of repair.
8.38     The case law has qualified section 11 of the 1985 Act by applying the general limitation on repairing covenants that the landlord is not liable for breach unless and until he has had notice of the disrepair.^[17] The landlord must also make good any damage caused by doing the works needed in order to ensure compliance with the covenant.
8.39     Under section 17 of the Landlord and Tenant Act 1985, where a tenant wishes to enforce the repairs duties implied by section 11,

the court may order specific performance of the covenant whether or not the breach relates to a part of the premises let to the tenant and notwithstanding any equitable rule restricting the scope of the remedy, whether on the basis of a lack of mutuality or otherwise.

This is extremely useful in practice. It ensures that orders for the carrying out of works can be obtained while avoiding the more notorious problems caused by the uneven development of the law on specific performance over the years.

8.40     We recommend that there should be a compulsory-minimum term in the agreement the effect of which is to adapt and apply the provisions of section 11 to all agreements falling within the scope of our scheme.
8.41     The following points should be noted in relation to this recommendation:

(1) the provision will apply to all occupation agreements falling within the scope of the scheme, including those created by the Crown as landlord of residential accommodation;^[18]

(2) the limitation to agreements for less than seven years will be retained;

(3) the power to seek an order from the court to exclude this term will not be reproduced in our scheme;

(4) the restrictions to the scope of the present term to those parts of the property set out in paragraph 8.34 above will be retained;

(5) the (current) tenant's common law duty to use the premises in a tenant-like manner will be adapted to apply to all occupiers;

(6) the current provision^[19] that the standard of repair should be judged against the age, character and locality of the premises will be retained;

(7) the current common law requirements that the landlord must have notice of the breach before he or she becomes liable under the term will be incorporated into the compulsory-minimum term; and

(8) the power to order specific performance will be extended to cover all breaches of this compulsory-minimum term.

8.42     There should be a default term which enables the landlord to enter the premises for the purpose of carrying out works required by the terms on fitness and repair.
8.43     Were the Government to decide to go further in terms of implementing our earlier recommendations on responsibility for the state and fitness of property, then these detailed provisions would need to be amended. However, for the purpose of the present project, we limit the scope of our proposals to adapting the present law to occupation agreements under our scheme, subject only to the minor modifications set out above.

Fitness for human habitation

8.44     At present, the general rule in the context of lettings of land is that you take the property as you find it. There is no implied term that premises are fit to live in, even where that is the clear purpose of the letting.^[20] This is at odds with our consumer approach; in other contexts, there is a legal presumption that goods supplied are "fit for purpose".
8.45     Section 8 of the Landlord and Tenant Act 1985 implies a term, which the parties cannot contract out of, that certain lettings will be fit for human habitation at the start of the let and will be kept so by the landlord. The history of this provision is explained in Lee v Leeds City Council.^[21] However, it has become redundant in that it only applies to leases for less than three years where the rent is less than £80 per year in inner London and £52 per year elsewhere. These figures date from when they were typical of working class rented housing, but now would only ever be associated with ground rent on a long lease.
8.46     In our earlier report on responsibility for the state and fitness of property we recommended that this provision should be revived and updated to apply to all leases for less than seven years without any rent limit. We recommended there should be a general obligation to keep premises let fit for human habitation in accordance with the modernised nine point standard.
8.47     We note that a major change in circumstances since LC 238 was published is that the government is now working to a programme of making social landlords achieve a "decency" standard in all social housing stock by 2010.^[22] This standard includes meeting the statutory fitness standard, but goes beyond that to include "reasonably modern facilities and services" and "a reasonable degree of thermal comfort". It is therefore likely that, under this programme, social housing would have to be fit within five years of our proposed scheme coming into operation.
8.48     We accept that if our recommendation was introduced with immediate effect for all occupation agreements, both new and pre-existing, this could have serious cost implications. Nevertheless, we think that our new scheme should include a compulsory-minimum term on fitness which adapts the principles set out there.
8.49     We recommend that, exceptionally, this term should not have immediate effect, but that the Secretary of State should have power to decide when it should be introduced. It could be introduced at different times for different types of agreement, and for new agreements and those in existence at the date our proposed Housing Act becomes operative.
8.50     When fully operational, the term should apply to all occupation agreements under our scheme, though the term should apply only to agreements for a term of less than seven years. The landlord should not be liable for matters which arise from the occupiers' fault, or their failure to look after the premises in a "tenant-like" way. Nor should the landlord be liable where the "unfitness is incapable of being remedied by the [lessor] at reasonable expense".
8.51     For the time being, the standard of fitness should be based on the provisions of section 604 of the Housing Act 1985, which provides:

"(1) Subject to subsection (2) below, a dwelling-house is fit for human habitation for the purposes of this Act unless, in the opinion of the local housing authority, it fails to meet one or more of the requirements in paragraphs (a) to (i) below and, by reason of that failure, is not reasonably suitable for occupation,—

(a) it is structurally stable;

(b) it is free from serious disrepair;

(c) it is free from dampness prejudicial to the health of the occupants (if any);

(d) it has adequate provision for lighting, heating and ventilation;

(e) it has an adequate piped supply of wholesome water;

(f) there are satisfactory facilities in the dwelling-house for the preparation and cooking of food, including a sink with a satisfactory supply of hot and cold water;

(g) it has a suitably located water-closet for the exclusive use of the occupants (if any);

(h) it has, for the exclusive use of the occupants (if any), a suitably located fixed bath or shower and wash-hand basin each of which is provided with a satisfactory supply of hot and cold water; and

(i) it has an effective system for the draining of foul, waste and surface water;

and any reference to a dwelling-house being unfit for human habitation shall be construed accordingly.

(2) Whether or not a dwelling-house which is a flat satisfies the requirements in subsection (1), it is unfit for human habitation for the purposes of this Act if, in the opinion of the local housing authority, the building or a part of the building outside the flat fails to meet one or more of the requirements in paragraphs (a) to (e) below and, by reason of that failure, the flat is not reasonably suitable for occupation,—

(a) the building or part is structurally stable;

(b) it is free from serious disrepair;

(c) it is free from dampness;

(d) it has adequate provision for ventilation; and

(e) it has an effective system for the draining of foul, waste and surface water…"

8.52     If the draft Housing Bill, currently the subject of consultation, reaches the statute book in essentially its present form, we recommend that this standard be adapted so as to avoid a "category 1 hazard" as defined in clause 2 (1) of the Bill.

(3) Occupiers' improvements

8.53     There is no general right for tenants or licensees to carry out improvements in the absence of an express term to that effect. Secure tenants do have statutory rights.^[23] Assured tenants do not have these statutory rights. However, the Housing Corporation would expect, as part of its regulatory regime, that RSL tenants would be given contractually equivalent rights.
8.54     We recommend that the Bill should provide that type I agreements contain a compulsory-minimum term giving occupiers the right to make improvements subject to the landlord's consent, which may not be unreasonably refused.^[24]
8.55     Type II occupiers, whether in the social or private sector, are differently placed. Introductory tenants and licensees do not currently have the right to make improvements. We do not see why it should be guaranteed to other type II occupiers. We will recommend in type II agreements that there should be a default term giving the landlord a veto over proposed improvements by the occupier.
8.56     The rights to compensation, reimbursement, and rent restriction relating to improvements should be preserved. They should operate as statutory provisions outside the agreement, and should apply to type I agreements only.

(4) Quiet enjoyment and non-derogation from grant

8.57     The covenant of quiet enjoyment is a promise that, without special reasons,^[25] the landlord should leave the tenant to enjoy occupation of the premises undisturbed. Case law has applied this basic concept to a wide range of factual circumstances, such as obstructing access to the premises, or even failing to keep premises watertight, which a landlord was obliged to repair. Under the present law it is a term that is implied into tenancies; it does not apply as a standard implied term to licences.
8.58     The common law also implies into tenancies a covenant that the landlord will not derogate from the grant of the tenancy. Broadly this prohibits the landlord from doing things that would undermine the purpose of the agreement. In the residential letting context, the covenant against derogation from grant effectively covers much the same ground as the covenant for quiet enjoyment.^[26]
8.59     We recommend that all agreements should contain a compulsory-minimum term setting out an equivalent of the current covenant of quiet enjoyment. This provision will have two main purposes:

(1) to protect the occupier from harassment by the landlord (or his agents); and

(2) to prohibit unnecessary interference with the occupier's peace and comfort.

8.60     We shall also recommend that the model agreement contains a note explaining these essential features of the meaning of "quiet enjoyment", emphasising that it is not a provision designed to deal with noise.
8.61     We recommend that the issue of the extent to which the landlord has the right to enter the premises should be dealt with in a default term.^[27]

(5) Warranties as to title

8.62     Under the current law on leases, the landlord does not have to give any warranty as to title, and unless the contract for granting the lease states otherwise the prospective tenant does not even have the right to call for the landlord's title.^[28] This principle has a number of practical consequences. The landlord is under no obligation to the tenant, unless the contract provides otherwise, to have obtained any necessary permissions from any head landlord or mortgagee to enter the tenancy agreement. The same principle applies to the obtaining of any planning permission or permission from insurers.
8.63     Commonly landlords with mortgages let without the permission of the mortgagee. If necessary, the mortgagee can repossess against the tenant as well as the landlord. This can be a considerable problem in practice. A person who thought he or she had a legally valid tenancy finds that, as against the mortgagee, he or she is an unlawful occupier. The landlord will usually be in breach of contract where the tenant is evicted because of action by the mortgagee, but only in rare cases will it be worthwhile suing. This position is in stark contrast to provisions in consumer law under which warranties as to title are impliedly made by both sellers of goods and hirers of goods.^[29]
8.64     We considered whether occupation agreements should contain a compulsory-minimum term requiring the landlord to give a warranty of title. However, we have concluded that this would be a step too far and might well have undesirable consequences. Nonetheless, although there are no current provisions on the point, we think that this is one area where – given the consumer approach we have adopted – some innovation is required.
8.65     We shall therefore recommend that occupation agreements should contain a compulsory-minimum term modelled on the implied term contained in section 7(1) of the Supply of Goods and Services Act 1982.^[30] The term should require the landlord to have, and maintain for the duration of the agreement, a right to give the occupier the right of occupation under the agreement. Failure to obtain some permission (for example from an insurer) would not constitute breach of the agreement by the landlord, unless it actually led to the termination of the occupier's right to occupy.
8.66     The original landlord would be liable for breach if he transferred his interest to a third party, and failed – as part of that transaction – to ensure that the new landlord agreed to be bound by occupation agreements made by the original landlord.^[31]

(6) Consultation and information

8.67     Most current provisions relating to requirements on landlords to provide information to their tenants and to consult with tenants about changes to their agreement should continue to be dealt with outside the contractual agreement.
8.68     There are certain provisions, to which social landlords are subject, relating to requirements to consult their tenants about matters of housing management. In relation to local housing authorities, these are statutory requirements;^[32] registered social landlords are required by the Housing Corporation to adopt similar rules.
8.69     We have come to the view that it would be helpful to set these requirements out in a compulsory-minimum term. It would apply to all type I agreements; and also to type II agreements when used by social landlords for probationary purposes.^[33]

Special terms

8.70     The third category is special terms. These reflect social policy concerns. As they will reflect matters of social policy determined by Government, they will be capable of variation only by the Secretary of State amending the law.
8.71     There are three issues which, reflecting the current law, we recommend should be dealt with in this category:

(1) anti-social behaviour;^[34]

(2) domestic violence;^[35] and

(3) the consequences of providing false information when applying for an occupation agreement.^[36]

8.72     We discuss (1) and (2) in Part XV.
8.73     In relation to (3) we recommend that there should be a special condition in the agreement that the occupier warrants that they have not knowingly or recklessly made false statements, or instigated anyone else to do so, in such a way as to induce the landlord to enter the agreement.^[37]

Other terms

8.74     The last category is the other terms. These will include default terms dealing with matters essential to the operation of the agreement; substitute terms, where the parties have agreed to replace a default term with one of their own terms; and additional terms, which relate to matters particular to the specific contract and in relation to which the parties have agreed a term.

Default and substitute terms

8.75     We recommend that, following consultation with representatives of the various interests in rented housing, the Secretary of State should produce terms on matters not covered by the key or compulsory-minimum terms but which are nonetheless essential for the creation of an operational occupation agreement. These will relate to obvious matters, for example the obligations of the occupier to pay the rent and to look after the property. The model agreements will contain default terms relating to these matters.
8.76     Where the parties agree, they may substitute their own terms for the default terms, here called substitute terms. Any express written substitute term set out in the agreement will override a default term. The default terms will apply where a substitute term has been agreed orally but has not been included in the written agreement, or where a substitute term has been agreed and written into the agreement but which turns out to be unenforceable for failing the fairness and transparency principles of the UTCCR.
8.77     The object of these recommendations is to ensure that, even if the parties do not expressly agree anything more than the key terms, a complete written agreement is still available to the parties. This means that all occupation agreements will have to include terms covering the matters for which there are default terms in the model agreement. They can achieve this, either simply by adopting the default terms set out in the model agreements or by substituting others. The terms in the model agreements will, by definition, be UTCCR compliant.
8.78     The matters in relation to which there will be default clauses will include:

(1) terms relating to occupiers' responsibilities, such as occupiers' obligations relating to repairs, to act in a tenant-like manner, to report disrepair, to give the landlord access for repairs, and not to make improvements without consent;

(2) where relevant, a term that the occupier use the property as their only or principal home; and

(3) where relevant, terms proposed as part of the new rules on joint occupation, lodgers, sub-occupation, transfer and succession.^[38]

8.79     While each default term should be capable of being imposed on the parties without amendment, some will need to be contingent on some particular feature of the property that would not be found in all cases. For example: "If there is a garden included in the property detailed in the key term, then the occupier will be responsible for maintaining it in the condition it was in at the start of the agreement".
8.80     The parties will be free to depart from the default terms, subject to the UTCCR tests of fairness and transparency. While those compulsory-minimum terms which are variable can only be varied in the occupier's favour, a default term can be varied against the interests of the occupier, provided that it still passes the UTCCR tests.

Additional terms

8.81     However carefully drafted, the model agreement will never capture all the particular requirements needed for all occupation agreements. There will therefore often be a need for additional terms to be agreed by the parties and included in the agreement. Such terms should be written down just like all the others, to produce a complete account of all the terms in the written agreement.
8.82     Where such a term has been agreed orally but is not included in the written agreement, we think that the rent sanction, normally applied for failure to reduce the agreement to writing, should not apply.
8.83     This leaves the question of whether such a term should be valid if it is not put into writing. If the term is treated as valid, then this could lead to uncertainty as these terms would then exist outside of the written agreement, and there will be no direct penalty on the landlord for having produced an incomplete written version of the agreement. We therefore recommend that any additional term should not be effective if it is not written down and included in the written statement of the agreement.
8.84     Where the landlord takes advantage of the model agreements to set out the bulk of the terms of the agreement, any additional terms would be stated on the front page of the written agreement.^[39]Having additional terms does not prevent a landlord from using a model agreement. The landlord could create a written agreement by joining together a statement of the additional terms and a generally available model agreement containing the approved form for the key terms and a set of compulsory-minimum, special and default terms.
8.85     This approach is subject to two caveats.
8.86     First, a landlord might agree orally to a favourable additional term to entice a potential occupier into an agreement. For example: "The occupier shall be entitled to use the garden." The landlord should not be allowed to renege on it by the simple expedient of omitting it from the written agreement. We therefore wish to enable the occupier to apply to court to rectify the written agreement to reflect the actual agreed terms. The court would order any additional term to be added to the agreement.
8.87     Under normal Civil Procedure Rules principles, there would be cost penalties against a landlord who refused to correct a written agreement voluntarily or against an occupier who brought an unwarranted case.
8.88     Secondly, there might be a term which was not express, but which needed to be implied into a particular agreement under the normal contractual principles of using implied terms to ensure the "business efficacy" of the agreement. Our scheme must not remove the court's power to imply terms on the basis of business efficacy outside the areas covered by the compulsory-minimum and default terms. Obviously, the issue will not come up until one or both of the parties notice the lacuna. If they agree what should fill the lacuna, they can agree on an additional term which can be put into writing and added to the agreement. If they do not agree then they will have to make do as best they can. If there is a dispute in court about the matter, then the court will have to be asked to judge what, if any, the contents of any implied term should be, following which the landlord will have to reduce it to writing in the normal way.

Variation of the terms of occupation agreements

8.89     Occupation agreements may last for a considerable period of time. Thus terms agreed at the commencement of an agreement may cease to be appropriate. If agreements cannot be varied then landlords will wish to terminate them. Our scheme must provide a method of varying terms to provide the flexibility necessary to enable agreements to survive. At the same time we recognise that variations could detrimentally affect occupiers and could be open to abuse by landlords.
8.90     We have already discussed the importance to our scheme of putting the agreement into writing. The requirement of writing must also apply to varied terms. Having said this we want to avoid unnecessary procedural complexity and onerous administrative burdens. The ability to vary the agreement must be related to the importance of the term to be varied.

Varying terms

8.91     The availability and extent of the power to vary will be different for each of the sets of terms in the agreement.

Key terms

8.92     The key terms of the agreement relate to defining the property subject to the agreement; the parties to the agreement; and the rent. In relation to the variation of these terms we recommend:

(1) There can be no variation of the property which is the subject of the occupation agreement.^[40]

(2) The parties to the agreement may be varied by mechanisms relating to joint-occupiers, successors and so on.^[41] There should be no variation of the parties to the contract other than by use of these provisions.^[42]

(3) The term relating to the rent can be freely varied; the extent to which the rent term can be varied will depend on the type of agreement, as discussed below at paragraph 8.102.

Compulsory-minimum terms

8.93     We have already noted that some of the compulsory-minimum terms, for instance those relating to repairing obligations, which reflect statutory tests, will need to be varied if the legislation underlying those terms is changed. Governments will need the freedom to make changes to these terms from time to time in order to pursue housing policy objectives. To achieve this, we recommend that the Secretary of State should have power to vary such compulsory-minimum terms by statutory instrument. The Secretary of State will have to consider, when varying these compulsory-minimum terms, whether the variation shall apply retrospectively to all agreements or only to ones created after the date of commencement of the statutory instrument. This will be a political decision for the Secretary of State. The system of notifying occupiers of a statutory variation and the sanctions for failing to notify should be consistent with the scheme described below.
8.94     We also recommend that compulsory-minimum terms should be capable of variation by the parties. In such cases, the variation can only be in the occupier's favour.

Special terms

8.95     These will not be variable, save by legislative amendment.

Other terms

8.96     Default terms can be varied if the contract provides a variation clause. The model agreements for type I and periodic type II agreements will include a default term dealing with variation. Such term will be deemed to be fair for UTCCR purposes.
8.97     Where the model terms do not provide a default variation term (as in the case of a type II fixed-term agreement) or the landlord chooses to use a substitute term, any variation clause must conform with the requirements of UTCCR.
8.98     Any term of the contract, once varied, must also comply with the UTCCR .

Rules for the different agreement types

8.99     We recommend that different rules relating to variation should apply to the different agreement types.

Variation of type I agreements

8.100     Type I agreements provide a high level of security for occupiers. This means that landlords have less control over the premises. Such agreements have the potential to last for a very long period during which time the conditions surrounding the agreement may change profoundly. Landlords have to be able to vary both rent and non-rent terms of the type I agreements.
8.101     However, the power to vary must be limited so that the security of the type I agreement is retained and the occupier retains some sense of personal autonomy in the home. We consider that the practical way in which to achieve this is to allow unilateral variation, but within limits. In particular, we recommend that there be mechanisms which support occupiers by requiring landlords to involve them in decision making about varying the terms of the agreement.

Varying the rent

8.102     We recommend that the model agreement for type I include a default term allowing landlords to vary the rent unilaterally. There should also be a compulsory-minimum term within the type I agreement which sets out the procedure for varying the rent. The term should provide that at least one month's notice of any proposed increase in rent should be given. Rent variation should be limited to annual rent increases.^[43]
8.103     If landlords using type I agreements wish to limit their right to rent increases then they can do so by varying the compulsory-minimum term in the occupier's favour and providing for no or less frequent rent variation.

Varying other terms

8.104     We recommend that landlords of type I occupiers should be able to vary other terms of agreements (other than the terms which cannot be varied save by the Secretary of State and the key terms other than rent) either by agreement between the landlord and the occupier or following a prescribed process of consultation with the occupier.
8.105     The provision allowing variation by agreement is desirable as it can avoid the procedural requirements of consultation.
8.106     The consultation requirements will apply to all landlords who rent on a type I basis. The requirements should be part of a compulsory-minimum term which sets out the right of the landlord unilaterally to vary the agreement subject to completion of the consultation process. As the requirement to consult will be a term in the contract, failure to consult will be a breach of contract.
8.107     Failure to consult properly may provide a basis for judicial review and Human Rights actions where the landlord is, respectively, a public body or public authority. The relevant principles are those recently restated by the Court of Appeal in R v North and East Devon Health Authority, ex parte Coughlan:

To be proper, consultation must be undertaken at a time when proposals are still at a formative stage; it must include sufficient reasons for particular proposals to allow those consulted to give intelligent consideration and an intelligent response; adequate time must be given for this purpose; and the product of consultation must be conscientiously taken into account when the ultimate decision is taken.^[44]

The effect of Coughlan is that the requirement to consult is necessarily more than a mechanistic one for public bodies.

8.108     In order to provide an equivalent remedy for failure to consult where the landlord is not a public body, we recommend that the term setting out the consultation requirements reproduce the Coughlan test as far as possible. Thus to be valid, the consultation process must be procedurally correct.^[45] In addition, there must be a "conscientious" evaluation of the results of the consultation. The decision-maker should not simply pay lip-service to the consultation process.

Variation of type II fixed term agreements

8.109     By definition, fixed-term agreements are designed to be fixed. The default position is that there will be no term permitting variation of agreement during the fixed term. This will be appropriate where the fixed-term is designed to be of short duration.
8.110     Where the fixed-term is for a longer period, the existence of a variation clause may be desirable. In such cases, the landlord will be free to insert an additional term in the agreement. Such a term, not being part of the model agreement, will not be automatically deemed fair for UTCCR purposes in the way that other default terms in the model agreement will be.
8.111     Current indications from the OFT guidance on unfair terms in rental agreements would suggest for instance that the OFT are likely to require rent increases during a fixed term rental agreement to be set to some objective framework such as RPI.

Variation in type II periodic agreements

8.112     Although periodic type II agreements have the potential for longevity, the landlord will usually be able to seek possession on the notice-only basis. Thus if variation is not permitted, the landlord may simply terminate the original agreement and re-grant it to the original or another occupier with the terms varied. It seems sensible to include a default term which allows for the variation of the rent and of other terms (not being key terms or special terms which are not variable). The default term should provide that the rent is reviewable and revisable on an annual basis. A landlord will be able to substitute a term to allow for more frequent variation of rent, but if they do so they will be subject to UTCCR principles.
8.113     Certain landlords, for instance social landlords or landlords who are co-operatives, may wish to consult before varying terms within a type II agreement. They will be able to include an additional "consultation-prior-to-variation" term within their agreements. However, we shall not recommend that such a term should be either a compulsory-minimum term or a default term.

Procedure

8.114     The procedure for varying type II periodic agreements should be the same for both rent and other variations. Variation should operate by at least two months' notice of variation which sets out the variation and informs the occupier that the variation will come into effect on the date stated in the notice, which must be at least two months after the date the notice was issued.
8.115     The notice of variation must additionally inform the occupier that it also takes effect as a notice of intention to take possession proceedings. Thus the landlord may commence possession proceedings under the notice-only procedure for eviction on a date following expiry of the two months' notice period, if the occupier does not agree to the variation.^[46]
8.116     The reason for conflating the variation and possession procedure in this way is to encourage the private landlord to use it. Otherwise he or she would simply issue notice-only proceedings for possession. This procedure should assist the landlord who wants the occupier to continue in possession but on varied terms.

Notification of variations: provision of a copy in writing

8.117     We recommend that the landlord should not be able to take advantage of the varied term until any period of notice has expired and written notification of the term as varied has been provided to the occupier.
8.118     We also recommend that, following notification of any variation, other than a variation of the rent, the occupier should have the right to request a written statement of the agreement complete with the varied term, which must be provided within two weeks of the request.
8.119     In those cases where the landlord has taken advantage of our recommendation that evidence of the written agreement can be provided by attaching the relevant model agreement to the front page, which sets out the key terms together with any variations of or additions to the model agreement,^[47] compliance with the request will be satisfied by the landlord simply re-issuing the front page, as further amended by the relevant variation.
8.120     Failure to provide this within two weeks of the date of the request will trigger the same sanctions, as does failure to provide the original agreement.^[48]

Issues to be dealt with outside the contract

8.121     Notwithstanding our general approach towards ensuring that the occupation agreement is the principal source of information about the landlord-occupier relationship, a number of issues will remain outside the contract.

(1) The right to buy and the right to acquire. These rights are in essence statutory schemes which do not directly relate to the landlord-occupier relationship, but where the right derives from the identity of the landlord and the status of the occupier. These provisions will be preserved in appropriately reformulated statutory provisions.

(2) The right to repair. This is a complex statutory scheme available to tenants of local authorities setting out procedures for the timely handling of certain small urgent repairs, likely to affect the tenant's health, safety or security. A similar scheme is available to the tenants of registered social landlords. We recommend that this be renamed the "small repairs procedure". It should apply to all type I agreements, and to type II agreements made by social landlords. It should remain as a statutory scheme, outside the contract, though we recommend that there be a compulsory-minimum term in the agreement under which the landlord contracts to follow the requirements of the statutory small repairs procedure, where this is relevant.

(3) Information about safety regulations. We think that at some future time it may be possible to incorporate into the agreement requirements relating to the safety of gas and electrical appliances.^[49] However, for the time being we recommend that the details of these continue to be set out in their statutory schemes.

(4) Financial matters relating to improvements. The current right to compensation for improvements, the power to reimburse for improvement and the limitation on increases of rent following improvements^[50] should be preserved as statutory provisions outside the contract.

(5) Consultation and information requirements. There are a variety of provisions relating to the provision of information and consultation which should continue to operate outside the agreement. They apply to social landlords. These provisions include: the right to receive annual reports on housing management performance;^[51] tenant participation compacts;^[52] publicity for certain allocation schemes;^[53] and consultation and balloting requirements where a social landlord intends to dispose of their interest to another landlord.^[54] The only consultation requirement to be brought within the occupation agreement is that relating to housing management (see above paragraph 2.36).

8.122     There will be a requirement to provide information about these extra-contractual issues in the occupation agreement.

Note 1    Discussed at paras 7.30 – 7.34 above.    [Back]

Note 2    Recital 20 of the Directive states “contracts should be drafted in plain, intelligible language, the consumer should actually be given an opportunity to examine all the terms…”. At para 19.2 of their Guidance, the OFT regard the requirement of transparency in reg 7 of the UTCCR as coloured by Recital 20.    [Back]

Note 3    See para 8.10, above.    [Back]

Note 4    It is important that the occupier’s name must be provided. In sole agreements, without any non-contractual occupants, there will not be a problem. But in joint agreements, or where certain people are to occupy the premises but not be parties to the contract, it will be essential that the landlord sets out clearly which people are entering the agreement. The most common problems are with couples or in student shared houses where a variety of arrangements can be made.    [Back]

Note 5    We have considered whether we should recommend that the Secretary of State include in the secondary legislation a default term about whether fixtures and chattels are included in the agreement and whether an inventory must be provided. This issue ties in closely with work ODPM are doing on the regulation of deposits (as disputes are often about the existence or state of items which could have been listed in an inventory to avoid disputes). We do not wish to prejudge that work by proposing that there should be a compulsory-minimum term on this issue in the Act.    [Back]

Note 6    The consideration will normally be rent, but need not be in all cases. The consideration could be purely in the form of a premium or could be payment in kind – most commonly found in relation to “tied” accommodation where the consideration is the entering into, or work done under, an employment contract – or any combination of these. It may thus include arrangements which under the current law of landlord and tenant could not be “rent”.    [Back]

Note 7    See paras 8.89 – 8.120, below.    [Back]

Note 8    “In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate (a) to the definition of the main subject matter of the contract; or (b) to the adequacy of the price or remuneration, as against the goods or services supplied…”    [Back]

Note 9    Currently found in the Landlord and Tenant Act 1985, s 11.    [Back]

Note 10    And the UTCCR rules, or any other rules of interpretation or validity, will not be able to lead to a result which is less than the minimum term.    [Back]

Note 11    Paras 9.15 – 9.44.    [Back]

Note 12    Landlord and Tenant Act 1985, s 11.    [Back]

Note 13    See paras 7.35 – 7.53, above.    [Back]

Note 14    (1996) Law Com No. 238.    [Back]

Note 15    The seven years are calculated by ignoring any part of the term before the grant, but including any longer term if it is determinable at the lessor’s option before the expiration of seven years from its commencement. A tenant’s option for renewal beyond the seven years is ignored.    [Back]

Note 16    Landlord and Tenant Act 1985 ss 11 – 14, as amended by Landlord and Tenant Act 1987, s 60.    [Back]

Note 17    See McGreal v Wake (1984) 13 HLR 107.    [Back]

Note 18    This will overturn the decision in Department of Transport v Egoroff (1986) 18 HLR 326.    [Back]

Note 19    Landlord and Tenant Act 1985, s 11(3).    [Back]

Note 20    This is subject to an exception in relation to lettings of furnished premises: Smith v Marrable (1843) 11 M & W 5; this only applies at the start of the letting and does not import an obligation to keep in repair.    [Back]

Note 21    [2002] 1 WLR 1488.    [Back]

Note 22    See documents at http://www.odpm.gov.uk/stellent/groups/odpm_control/documents/ contentservertemplate/odpm_index.hcst?n=1187&l=3.    [Back]

Note 23    Housing Act 1985, s 97 provides that a secure tenant or licensee, but not an introductory tenant or licensee, has the right to make improvements to the premises, provided that they obtain written consent from the landlord. The landlord must not unreasonably withhold consent, but can impose reasonable conditions. It is for the landlord to show that a refusal or a condition is reasonable, and consent will be treated as given if it is withheld unreasonably or if unreasonable conditions are imposed. On reasonableness the court must have regard in particular to whether the improvement would make the dwelling less safe for occupiers, would cause the landlord to incur additional expenditure, or reduce the value of the property on the market or the rent which could be charged. “Improvements” for these purposes covers any alteration or addition to the dwelling, including to the fixtures and fittings, such as a new kitchen, bathroom or toilet, the outside decoration, and the addition of a television aerial or satellite dish.    [Back]

Note 24    We discuss the question of consent below, Part X.    [Back]

Note 25    For example to gain access to inspect the premises or carry out repairs.    [Back]

Note 26    Peter Sparkes, in A New Landlord and Tenant (2001), says at p 310 that it “seems to add little to quiet enjoyment”.    [Back]

Note 27    See para 8.42, above.    [Back]

Note 28    See Law of Property Act 1925, s 44.    [Back]

Note 29    See Sale of Goods Act 1979, s 12(1); Supply of Goods and Services Act 1982, s 7(1).    [Back]

Note 30    Section 7(1) reads: “In a contract for the hire of goods there is an implied condition on the part of the bailor that in the case of a bailment he has a right to transfer possession of the goods by way of hire for the period of the bailment and in the case of an agreement to bail he will have such a right at the time of the bailment.”    [Back]

Note 31    This would only apply to occupation agreements that amounted to licenses; agreements that were, in law, tenancies would bind the new landlord in any event.    [Back]

Note 32    Housing Act 1985, s 105; and Housing Act 1996, s 137.    [Back]

Note 33    This will reflect the fact that introductory tenants are currently entitled to the benefit of these consultation obligations.    [Back]

Note 34    Currently dealt with in Housing Act 1985, Schedule 2, ground 2A, and Housing Act 1988, Schedule 2, ground 14.    [Back]

Note 35    Currently Housing Act 1985, Schedule 2, ground 2A, and Housing Act 1988, Schedule 2, ground 14A.    [Back]

Note 36    Currently Housing Act 1985, Schedule 2, ground 5, and Housing Act 1988, Schedule 2, ground 17.    [Back]

Note 37    To reproduce the effect of Housing Act 1985 Schedule 2, ground 5 and Housing Act 1988 Schedule 2, ground 17.    [Back]

Note 38    These are discussed in Parts XI to XIV.     [Back]

Note 39    See para 8.12 above.    [Back]

Note 40    That is consistent with the current provision in Housing Act 1985, s 102(2), the effect of which should be extended.    [Back]

Note 41    Discussed below in Parts XI to XIV.    [Back]

Note 42    This is a separate issue from complying with the compulsory-minimum term requiring up to date written information about an address for service for the landlord and the name and address of any agent. Changing that information is not a question of varying the compulsory–minimum term, but there should be special provisions for the rent sanction and other consequences to be applied where there is a change to the information. See paragraphs 7.47 – 7.48.    [Back]

Note 43    In the same way that it is limited within the current assured tenancy regime set out in Housing Act 1988, s 13.    [Back]

Note 44    [2001] 1 QB 213, 258.     [Back]

Note 45    This can build on provisions currently found in Housing Act 1985, s 103.    [Back]

Note 46    The principle of “use it or lose it” will equally apply in this context. Thus proceedings must be started within four months of the end of the notice period: see para 9.13 below.    [Back]

Note 47    See para 8.12, above.    [Back]

Note 48    See para 7.35 – 7.53, above.    [Back]

Note 49    Gas Appliances (Safety) Regulations 1992, SI 1992 No 711 and Gas Appliances (Safety) Regulations 1995, SI 1995 No 1629; Electrical Equipment (Safety) Regulations 1994, SI 1994 No 3260.    [Back]

Note 50    Housing Act 1985, ss 99A, 99B, 100, 101.    [Back]

Note 51    Local Government and Housing Act 1989, s 25.    [Back]

Note 52    Local Government Act 1999, Part I.    [Back]

Note 53    Housing Act 1985, s 106.    [Back]

Note 54    See, for example, Housing Act 1985, s 106A and Schedule 3A, relating to large scale voluntary transfers under Housing Act 1985, s 32.    [Back]