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Recoverability of Money Paid in Relation to Unfair Terms

There is a certain amount of interest recently in the ability to recover monies paid in respect of terms in agreements, which have later been found to be unfair. This has been a live issue in respect of the aftermath of the case of Office of Fair Trading v Foxtons as well as the Office of Fair Trading v Abbey National & Others.

Given the decision of the High Court in OFT v Foxtons, there has been understandable interest in the ability of landlords to recover money in respect of agents’ renewal commission charges where those charges might be unfair.

The first thing to point out is that a finding of unfairness does not make a contract void. Under regulation 8(1) of he Unfair Terms in Consumer Contract Regulations 1999 a term that is unfair is deemed to be unenforceable. Regulation 8(2) clarifies that the making of a single clause unenforceable does not make the contract non-binding provided it can still operate shorn of the unfair clause.

It is accepted law that where a whole contract is void due to a mistake or other problem then there is a total failure of consideration and therefore all payments made can be recovered. Where a contract is rendered void by statute then it will depend on the actual statute whether there is a right to recover monies paid. However, none of this has any relevance to unfair terms matters as nothing in the regulations renders a contract void but merely makes certain clauses within it unenforceable.

Where a contract is unenforceable, and presumably where it contains unenforceable terms, there is no right to recover monies paid unless a total failure of consideration can be shown. Where a degree of service has been provided this is unlikely to be the case.

Therefore a declaration of unfairness, while it will make a clause unenforceable and will certainly therefore prevent further monies being claimed in reliance on it will not necessarily give rise to a right to recover money. It would be necessary to show that the entire contract was unfair and therefore that there had been a total failure of consideration to achieve this.

5 Comments

  • Peter Smith 27th May 2010 at 7:51 pm

    “Under regulation 8(1) of he Unfair Terms in Consumer Contract Regulations 1999 a term that is unfair is deemed to be unenforceable. Regulation 8(2) clarifies….”

    But contracts between landlords and agents are not consumer contracts. Are you saying that these regulations, or the operating principles underlying them, are more widely applicable?

    I have a very special reason for asking.

    • PainSmith 27th May 2010 at 7:53 pm

      Contracts between private landlords and agents most certainly are consumer contracts. Otherwise the entire OFT v Foxtons case would have been impossible.

  • Adrian Thompson 30th May 2010 at 8:57 am

    Interesting … but don’t the regulations apply to “consumers” only?

    “consumer” means any natural person who, in contracts covered by these Regulations, is acting for purposes which are outside his trade, business or profession [r.3]; and

    These Regulations apply in relation to unfair terms in contracts concluded between a seller or a supplier and a consumer [r.4(1)]

    Therefore, I accept that if a person rents out his / her home as a one off (perhaps an accidental landlord), they are covered, but if the landlord is a professional, say with 3 + properties, the regulations don’t apply?

    Just a thought

    Adrian

    • PainSmith 30th May 2010 at 1:09 pm

      Your definition of consumer is in error.

      Owning a number of properties does not stop a landlord being a consumer. A landlord will only be a consumer if he is genuinely operating his properties as his primary income source. This does not apply to many landlords.

      We have previously posted on this issue here.

  • Adrian Thompson 31st May 2010 at 10:55 am

    Very interesting …. Thank you

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