UK Housing Alliance (North West) Ltd v Francis

A tenancy deposit under the Housing Act 2004 requires a transfer of money or property by the tenant. A deferred part of the price payable to a former owner under a sale-and-leaseback transaction is not a deposit.

Relief against forfeiture protects proprietary or possessory rights. It does not protect a contingent contractual right to payment of a debt.

Under regulation 5 of the Unfair Terms in Consumer Contract Regulations 1999, an opportunity to consider or influence a term does not establish individual negotiation. An unnegotiated term is unfair only if it causes a significant imbalance to the consumer's detriment and does so contrary to good faith. The contract must be assessed as a whole at the time it was made.

The appellant sold his home to the respondent for £125,000 and immediately took an assured shorthold tenancy of it. Thirty per cent of the purchase price was deferred. Under the sale agreement, the appellant lost his right to that final payment if the respondent terminated the tenancy pursuant to a contractual right.

After rent arrears arose, the respondent obtained possession under Ground 8 of the second schedule to the Housing Act 1988. Mrs Recorder Stocken rejected the appellant's claims that the deferred sum was a tenancy deposit, that its loss was an unenforceable penalty or forfeiture, and that the relevant contractual term was unfair.

The appellant challenged each conclusion in the Court of Appeal.

1. Appeal dismissed. The deferred part of the purchase price was not a tenancy deposit within Part 6 of the Housing Act 2004. Although the statutory definition referred to money intended to be held as security, the legislation as a whole repeatedly contemplated a deposit paid by the tenant, received by the landlord and repayable to the tenant. Those concepts did not describe money which the landlord had agreed to pay the tenant as part of the price of property previously sold by him.

2. The provision was not a penalty because no sum became payable upon breach. Nor could the court grant relief against forfeiture. Such relief requires the forfeiture of property which the claimant owns or possesses. The appellant had lost only a contingent contractual right to payment of a debt and had no proprietary interest in the deferred money. Even if jurisdiction had existed, relief could have been granted only on terms that the outstanding rent was paid, and there was no evidence that the appellant could do so.

3. The Recorder erred in finding that the relevant term had been individually negotiated. The opportunity afforded to the consumer or his solicitor to consider or influence a term does not prove actual negotiation. The supplier bears the burden of proving that the term was individually negotiated, and the respondent had not discharged it.

4. Regulation 5(1) of the Unfair Terms in Consumer Contract Regulations 1999 imposed the twin requirements identified in Director-General of Fair Trading v First National Bank Plc [2002] 1 AC 481. The term had to cause a significant imbalance in the parties' rights and obligations to the consumer's detriment, and that imbalance had to be contrary to good faith. The contract had to be considered as a whole and assessed when it was made.

5. The term met neither requirement. Its operation depended upon a court order for possession, and trivial breaches would not realistically produce such an order. Retention of less than one third of the purchase price did not create a significant imbalance when the possible future state of the letting and sale markets was considered. The term was clear and prominent. The consumer had legal representation and the protection of judicial scrutiny in possession proceedings, so the arrangement did not offend fair and open dealing or good standards of commercial morality and practice.

Lady Justice Smith and the Master of the Rolls agreed with Lord Justice Longmore.

1. Court of Appeal (Civil Division): The appellant's appeal was dismissed unanimously. The court upheld the Recorder's conclusions, although it held that she had erred in finding the relevant term individually negotiated.
2. Great Grimsby County Court: Mrs Recorder Stocken ordered possession and rejected the tenant's arguments concerning tenancy deposits, penalties or forfeiture, and unfair contractual terms.