Peabody Trust v Reeve

A tenancy agreement containing directly contradictory variation provisions must be construed according to the applicable consumer-protection rules. Under Regulation 7(2) of the Unfair Terms in Consumer Contracts Regulations 1999, doubt is resolved in the interpretation most favourable to the tenant. A sweeping unilateral variation clause in a registered social landlord’s standard tenancy agreement is likely to fail the fairness test where it is not individually negotiated, creates a significant imbalance to the tenant’s detriment, and is contrary to fair and open dealing. A tenant’s formal ability to leave the tenancy may be unrealistic and will not necessarily cure the unfairness.

The claimant, a registered social landlord and charity, brought a test case concerning approximately 10,000 assured tenancies. Its standard agreement stated both that alterations required written agreement by landlord and tenant, and that the landlord could vary the agreement unilaterally by notice using the procedure in section 103 of the Housing Act 1985.

The claimant argued that clause 5(b) created a unilateral power of variation. The defendant argued that the clauses were contradictory and that any such term was not binding under Regulation 8 of the Unfair Terms in Consumer Contracts Regulations 1999. The central issues were the true construction of clause 5 and, alternatively, whether the unilateral variation provision was unfair.

1. Construction. Clause 5(a) and clause 5(b) were flatly contradictory. Clause 5(a) was clear and appeared first. Clause 5(b) was obscure to a tenant without the text of section 103 of the Housing Act 1985, which had not been appended. The agreement therefore did not confer a unilateral power of variation. Except for changes in rent, alteration required the written agreement of both parties.
2. The management needs of a large registered social landlord did not justify implying or selecting such a power. The Queen on the Application of Kilby v Basildon District Council [2007] EWCA Civ 479 concerned a local authority’s statutory power and duty. Its broader observations about the need for unilateral variation were a dictum requiring caution outside that statutory context.
3. Regulation 7(2) required any doubt about the meaning of the written term to be resolved in the interpretation most favourable to the tenant. The same result would follow, outside the Regulations, from the domestic contra proferentem principle. The principle that an earlier irreconcilable provision prevails, stated in Forbes v Git [1922] 1 AC 256 (PC), provided an alternative route, but was a last-resort and potentially arbitrary method of construction. The generalia specialibus non derogant approach was inappropriate because the two provisions addressed the same subject matter.
4. Fairness. If clause 5(b) had created a unilateral variation power, it would not have been binding under Regulation 8. The term was not individually negotiated. It caused a significant imbalance to the tenant’s detriment. A tenant’s ability to give notice and leave was unrealistic in low-cost social housing and did not provide a real choice. The term was also contrary to fair and open dealing because it was contradictory, obscure and sweeping.
5. The indicative list in Schedule 2 did not determine fairness. A term could fall within paragraph 1(j) and paragraph 2(b) yet still be unfair. The court had to consider all circumstances at the time of contracting. A broad power capable of imposing unexpected restrictions or burdens was especially objectionable. The claimant’s social-landlord and charitable status did not make an almost unrestricted power fair.
6. The claim was dismissed. The court ordered the claimant to make the declaration sought by the defendant and to pay the defendant’s costs as agreed.