Occasionally, a landlord will want to vary the terms of its’ existing tenancy agreements. The need to vary can arise because the tenancy agreement needs updating, it does not adequately deal with current issues, or to allow for the addition, removal or enhancement of services for which the landlord wants to charge a service charge. Richard Vernon, corporate lawyer, highlights the key areas to consider when drafting variation clauses for tenancy agreements.
Section 103 of the Housing Act 1985 provides a statutory procedure for varying the terms of a secure periodic tenancy agreement, but there is no similar statutory procedure set out in the Housing Act 1988 for landlords of assured and assured shorthold tenants. In these cases, the tenancy agreement will usually set out the procedure that a landlord who wishes to vary its agreements must follow. These clauses can require the landlord to reach written agreement with each tenant separately, or to consult before making changes. If the agreement says nothing then it is only possible to vary by individual negotiation with each tenant.
Where an agreement does allow the landlord to unilaterally vary the terms of a tenancy (that is to say without individual agreement with the tenant) it is not always plain sailing and a clause of this kind can be viewed by the Court as too wide and therefore unfair and if a clause is unfair it will be unenforceable.
The Court of Appeal has confirmed that the Unfair Terms in Consumer Contracts Regulations 1999 (“UTCCR”) apply to tenancy agreements and to public authorities. So, it is clear that any clauses in a tenancy agreement will need to be fair to the tenant if the landlord wants to be able to rely on them.
In the case of Peabody Trust Governors v Reeve [2008], a social landlord had included clauses in the tenancy agreement dealing with variation. There were two clauses. The first prevented variation (except in respect of rent) unless the landlord and tenant agreed. The second permitted the landlord to vary the terms of its tenancies by using the Section 103 procedure. At first glance those clauses seem fine, but on a closer look it becomes clear that they contradict one another. If the parties can’t vary the terms (except in respect of rent) without agreement, then how can the Section 103 procedure ever be used, as the tenant’s agreement isn’t required as part of that procedure?
The Court decided that the clauses didn’t make sense, rather they contradicted one another. On that basis, the Court was obliged by the UTCCR to interpret the agreement in the tenant’s favour. So, the landlord wasn’t able to vary the terms of the tenancy without the tenant’s agreement.
Having decided that the clause in Peabody’s agreement which reflected the requirements of Section 103 was effectively unenforceable, the Court considered whether a wide right to vary in an assured tenancy agreement would be fair for the purposes of the UTCCR. The Court confirmed that the UTCCR applied in any case where the term of the agreement being challenged had not been “individually negotiated” with the tenant when the agreement was granted. Where the UTCCR applied the term must reflect fair and open dealing and not cause an imbalance in favour of the landlord to the detriment of the tenant. Further, to satisfy the requirements of the UTCCR, any unilateral variation clause would have needed to take full and proper account of common-sense guidelines set out by the then Office of Fair Trading.
It is clear that care must be taken when drafting variation clauses for tenancy agreements. But more that that, care should also be taken in ensuring that the tenancy agreement included all the necessary flexibility to deal with future changes, so that there should be little need for a landlord to make a unilateral change to the agreement in the first place.
