Fair's fair when it comes to contracts

There were two issues to be decided. The first was whether the council's policy of requiring homeless applicants to accept or refuse accommodation without first seeing the property was unlawful or oppressive. The Court of Appeal, reversing the judgment in the lower court, decided it was lawful since Newham, before selecting a property to offer the applicant, had obtained all relevant information about them and the applicant still had the right to a review after moving in. The Court of Appeal said it found the "precise ratio" of the lower court's decision "disconcertingly elusive" – ouch!

The second issue was whether the 1999 Unfair Terms in Consumer Contract Regulations 1999 could be applied to Newham's "insecure" tenancy agreements. The regulations were derived from EC Directive 93/13/EEC on consumer protection and aim to protect a consumer against unfair standard terms in contracts for goods and services with a seller or supplier selling in exercise of their trade, business or profession.

The regulations require those contracts to be clearly written, to have a good-faith basis, to be balanced, not to be loaded against the consumer, to have no hidden obligations and not enable the business to change the contract terms unilaterally. Any offending terms can be simply cut out of the contract so it becomes fair to the consumer.

Lawyers in the social housing movement assumed the unfair terms regulations did apply to tenancies and shared ownership leases; so did the Housing Corporation (see Circular 25/99). Both advised registered social landlords to observe the Office of Fair Trading's guidance of November 2001.

So, was Newham's Part VII tenancy agreement in breach of the regulations? The OFT joined in the case and Newham, while stating that it would never want to impose unfair terms and did not think any of its tenancy terms were unfair, put forward "for the sake of good order" three arguments:

• that the regulations did apply to all contracts made with a business for the transfer of any interest in land. English law did not regard land as goods and there was nothing in the original directive that goods included land – thus the consumer had no protection when buying accommodation, whether on a tenancy, a long lease or a freehold basis from a business
  
• even if the regulations did apply to land contracts, they did not apply when the council was acting under statutory duties (Part VII of the 1996 Housing Act) as the council was not, in that capacity, a "business"
  
• even if it was a "business" it was not a "seller" or "supplier" under the directive.

Most lawyers will agree that the Unfair Terms in Consumer Contract Regulations should apply to all tenancies

The Appeal Court undertook a wide and deep analysis of the directive and the regulations and of the purposive approach the courts will adopt when looking at such directives. Here, the purpose was to give a high level of consumer protection and as "the acquisition of a home, rent or buy, is a key event in [consumers'] lives" to exclude land transactions would cut across the aim to give consumers that high level of protection. The English view – one not shared by other EC states – that land was not goods in the context of this consumer protection was "an embarrassing eccentricity".

So, private owners selling their homes are not affected – they are not businesses – the Housing Bill Homepack proposals will regulate such sales.

Now we have strong judicial authenticity that the unfair terms regulations cover the less respectable housebuilders' sale contracts and leases, so they are vulnerable to the cut-out of the unfair terms (non-returnable deposits, paying the seller's legal costs, for example) leaving the rest of the contract intact for the consumers benefit.

The Appeal Court merged the second and third arguments and ruled that the mere fact that Newham was a public authority was not enough to take it outside the regulations, but nor was the council a "seller". The argument that Newham was required by law to provide the accommodation, so was not a business or a seller, was no go, said the court, because the result, the grant of a tenancy, could be carried out by a private landlord – and indeed often was. Further, applying the regulations would not undermine the public interest in the council's homelessness function.

Most lawyers will agree that the regulations should apply to all tenancies. Public and quasi-public sector "accommodation" contracts, such as student accommodation and care home agreements are clearly open to the regulations – in the former, perhaps where degrees are withheld if rent is unpaid, in the latter, where if you get too ill, you are out. This is good for the consumer, but how will funders of these schemes assess the risk? It will be interesting to see how the OFT wants Newham to amend its tenancies.