Unfair clauses in residential tenancy agreements: what’s the situation?

A recent survey by USwitch states that many private sector letting agreements contain provisions which state that the tenant should (or must) obtain their energy from the landlord’s preferred supplier.

The survey states that around 5 per cent of renters in the UK have not switched their energy suppliers because they believe their tenancy agreement prevents them from doing so.

The energy regulator (OFGEM) has stated that while a “preferred supplier clause” can be used in rental agreements, tenants are under no obligation to use the main provider and landlords and letting agents cannot prevent tenants from switching.

Tenants will need to review the content of their tenancies carefully to assess what the contractual position is. Even if the clause contains an absolute prohibition on switching supplier, a tenant may still have redress via recourse to the law.

In 2005 the Office of Fair Trading (OFT) issued guidance on unfair terms in assured shorthold tenancy agreements.

The OFT was abolished in 2014 and its remit is now undertaken by the Competition and Markets Authority (CMA). The CMA has adopted the Guidance, although it has not been updated to take into account more recent legal developments. For example, it does not refer to the unfair terms in consumer contract provisions of the Consumer Rights Act 2015.

The Guidance therefore needs to be read with a degree of caution; however it states that standard terms (i.e. those that have not been individually negotiated) used by landlords in pre-formulated tenancy agreements must be fair and clear. If not, the CMA can take action by either seeking an undertaking from the business that it will stop using the unfair term or, if necessary, seeking an enforcement order in the courts to make the unfair term legally unenforceable.

It is worth noting that, in the Annex to the Guidance under the heading: “Unreasonable Ancillary Obligations and Restrictions”, an example of such a clause is one which states that the tenant must not change the utility supplier without the landlord’s consent in writing. The view expressed in the Guidance is that the tenant should have the choice of supplier, although he or she may be required to keep the landlord informed of any change and to return the account to the original supplier at the end of the tenancy.

Karl Anders is a director at Walker Morris