Unfair Terms and Penalty Clauses in Tenancy Agreements
At the SRC advice centre we see many different tenancy agreements, each with their own unique terms. Some terms in tenancy agreements are intended to impose a penalty on the tenant should he or she fail to act in accordance with other terms in the agreement. The SRC advice centre has been successful in arguing at court that a term such as this constitutes an unfair contract term and that the term was an unfair penalty.
Example 1: the landlord states in the tenancy agreement that if he does not receive the rent on the due date then he will be entitled to an additional percentage of the rent that was paid late as compensation.
Example 2: the landlord states in the tenancy agreement that if at the end of the tenancy the property is not left in a clean and habitable condition the tenant will immediately forfeit his or her right to the return of the entire deposit.
Unfair contract terms
These are regulated by the Unfair Terms in Consumer Contracts Regulations 1999. The Court of Appeal has confirmed that these regulations can apply to tenancy agreements.
The SRC Advice Centre has successfully argued in court that regulation 5 applied where the landlord had drafted the tenancy agreement in advance of the tenant signing it and the tenant had no opportunity to negotiate the terms. A term is considered potentially unfair if it creates an imbalance in the rights and responsibilities of the landlord and tenant to the extent that the tenant is adversely affected.
A penalty is unfair if it is greater than the actual loss that the landlord incurred as a result of the breach of the term of the tenancy by the tenant.
Example: a landlord charges a penalty of 10% of the monthly rent if the rent (£500) is not paid on time. In this case the landlord would have to show that as a direct consequence of the late payment he incurred a loss of £50. If the landlord is unable to justify the penalty charged then it is likely to be considered unfair.
What can you do about it?
It is the courts which have the ultimate say over whether a contract term is unfair or constitutes an unlawful penalty.
At the advice centre we are aware that terms such as those described above are present in many tenancy agreements entered into by students. If you believe your landlord is trying to enforce such a term against you please get in touch with the SRC advice centre where our staff will be able to advise you further.