Consumer protection: get your house in order

Posted: 09/12/2014

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From 1 October 2014, consumers (including those in the real estate sector) who are victim of misleading or aggressive practices have new weapons in their arsenal.

As a result of amendments made to the Consumer Protection from Unfair Trading Regulations 2008 (the “2008 Regulations”), assured shorthold tenants (among others) can now bring civil proceedings to:

• unwind their tenancy and get a full refund;
• discount their rent; and
• claim damages for additional losses or harm they have suffered.

These new rights of redress could increase void periods and negatively affect income streams. Negligence claims against agents may follow. Consumer landlords could also unwind agency agreements if they are misled, for example where unexpected charges are levied.

Businesses operating in the private residential sector should already be aware of their duties under consumer protection legislation. In June 2014, the Competition & Marketing Authority (CMA) published guidance – Consumer Protection Law for Lettings Professionals – to help improve their understanding of, and compliance with, consumer protection law. Businesses with good procedures in place that comply with the 2008 Regulations have nothing to fear from the recent changes; those which do not would be well advised to get to grips with them.

What has changed?

Prior to 1 October 2014, if property businesses used unfair commercial practices in their dealings with consumers in breach of the 2008 Regulations, aggrieved consumers could either ask CMA or Trading Standards to take enforcement action or they could rely on traditional civil actions, eg a claim in misrepresentation. Now consumers can also exercise new redress rights under part 4a of the 2008 Regulations.

Subject to satisfying the conditions below, the new rights are available for:

• assured tenancies, including assured shorthold tenancies;
• holiday accommodation leases; and
• contracts for agency services (for example, letting and management services and estate agency services).

The conditions

The redress rights are only available where a contract or a payment is made after 1 October 2014 for the sale or supply of a “product” (including a tenancy or service contract). The contract or payment must be between a “trader” and “consumer” and there must have been a “prohibited practice”.

Note that a “trader” is someone acting for purposes relating to their business, trade or profession. This includes letting agents and business landlords. Private landlords who deal with residential tenants (such as buy-to-let landlords) could also be a trader.

Prohibited practice is defined as an act, omission, course of conduct, or representation that is either “misleading” under regulation 5 (false information is given or, even where the information is factually correct, the overall presentation would mislead the average consumer) or “aggressive” under regulation 7. The prohibited practice must be a “significant factor” in the consumer’s decision to enter into the contract or make the payment. What is “significant” is a question of fact.

There are some limitations. The new rights do not apply to sales or purchases of real estate, social housing provided by local authorities or housing associations or lettings that do not fall within Part 1 of the Housing Act 1988. Nor do they apply to misleading omissions, unless the omission results in the overall presentation being misleading.

For the above types of contracts or actions, consumers must seek redress as they did prior to 1 October.

Action points

Businesses operating in the private residential sector should ensure that they understand the requirements of the amended regulations. A good starting place is the CMA guidance mentioned above and BIS guidance: Misleading and Aggressive Commercial Practices – New Private Rights for Consumers.

Appropriate compliance procedures should be in place, including systems and safeguards to verify the accuracy of statements made in marketing materials. Comprehensive records should be maintained to demonstrate compliance and staff need to be appropriately trained.

Consumer tenants and landlords should know what charges and fees apply and what these are for. Clear and timely information should be provided to tenants, such as guarantor and deposit requirements, the terms of the tenancy agreement and clear information on ending the tenancy. Tenants’ questions about the condition of the property and liability for repair should be answered carefully.

The future

The size of the private rented sector continues to grow and while regulation is increasing, there are still players in the industry that do not comply with consumer protection laws. Perhaps these new rights of redress will force those parties to clean up their act.

How the law works

A letting agent, on behalf of a trader landlord, represents that an assured shorthold tenancy (AST) came with the exclusive use of a car parking space. That turns out not to be the case. The residential tenant successfully makes out a claim under the 2008 Regulations.

The redress rights available to the tenant depend on when they take action.

If the tenant acts in the first month of the AST, they can indicate to the landlord that they want to terminate the AST. If the matter cannot be resolved, they can bring civil proceedings to:

• unwind the tenancy – the landlord and tenant are released from all obligations under the AST and the AST comes to an end; and
• recover the full rent and deposit that they have paid – no deduction will be made for the time that the tenant has been in occupation.

Alternatively, the tenant can ask for the rent to be discounted. In either case the tenant can also claim damages, provided that they can prove actual loss and there is no due diligence defence available to the landlord trader.

If the tenant acts after the first month but before the expiry of 90 days from the start of the AST, the tenant can seek to terminate the AST. The tenant has the same rights as above but will not get a full refund of their rent or deposit. A deduction will be made to reflect the rent for the time that the tenant has been in occupation.

If the tenant acts after the expiry of 90 days from the start of the AST, the tenant has no right to unwind the AST but can ask for the rent to be discounted. Damages can also be claimed.

This article was published in Estates Gazette in December 2014.

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