What is an Unfair Contract in England and Wales?

The government places great weight on businesses to act in good faith when negotiating business dealings. This is to safeguard consumers and anyone entering into a commercial contract from an unfair contract term. Unfair contracts are agreements that give significant benefits to one party at the expense of someone else. This article will explain how unfair contracts work and how you can seek remedies if you have been subjected to an unfair contract term.

What is an Unfair Contract?

There are two occasions when a contract can be considered unfair.

Those are if a contract:

• causes a significant imbalance of rights and obligations, which causes a noticeable detriment to one party; and
• was negotiated and drafted without good faith.

1. Significant Imbalance of Rights

The first occasion is perhaps the most common form of unfair contract and can arise when businesses are negligent or inexperienced when reviewing or drafting contracts. Contracts will provide a set of rights and duties to either party entering into that contract. If a party takes advantage of their position to include terms in that contract that might give them a greater beneficial interest at the detriment of the other party, then that can make their contractual arrangement unfair.

A party may agree to unfair terms because they did not understand them completely or did not have enough power to veto the inclusion of that clause in the contract. Fairness tests can seek out these occasions and identify when a person is not acting in good faith. To do this, they typically ask whether a reasonable person would have agreed to the contract’s provisions. If the answer is no, then the contract could be considered unfair. 

2. Negotiated Without Good Faith

The second string to identifying an unfair contract is assessing whether the parties to that agreement were acting in good faith during their negotiations. Good faith essentially means fair, open and transparent dealings. Misrepresentations and trying to deceive other parties to a contract by including standard terms that would give you an imbalance of rights is not honest dealing and is therefore not considered good faith.

Under English and Welsh law, you must conduct negotiations fairly and openly. That gives both parties rights to discuss and veto terms that may detriment them. Those parties that take advantage of another’s naivety, lack of experience, or even coerce another business into agreeing to an unfair term do not act in good faith.

What is an Unfair Term?

Unfair terms are the provisions included in a contract that give one party more significant benefits at the detriment of another. There are four main kinds of unfair terms you may encounter in your business dealings.

Unbalanced Rights

As above, a contractual term can be unfair when it gives one party greater rights than another. For example, a landlord may try to insert a term in an agreement that allows them to end a tenancy agreement with 24 hours’ notice but still requires the tenant to provide six months’ notice if they wish to end that lease.

Excessive Cancellation Fees or Any Administration Fees

Sometimes businesses can sneak excessive fees and figures into a contract that unassuming customers might agree to. Particularly regarding cancellation fees, businesses can keep people locked into contracts by imposing harsh penalties if they decide to back out of an agreement. Similarly, imposing excessive administration fees for simple tasks like filing or delivering documents can also be an unfair contract term.

Changes in Price

This term is particularly important in contracts made for the sale of goods. Fluctuations in price can naturally occur in all markets around the world. However, a seller should not include provisions in a contract that allows for changes in the price of goods after forming a written contract with another party. The buyer will enter into that agreement because they were purchasing goods for a set price. If that price goes up, then they will be at a detriment. 

Negating Liability for Death or Personal Injury

Terms that try to avoid a business’s responsibility for the following occasions are also considered unfair. They include:

• death;
• injury;
• faulty goods; and
• goods that arrive as not described.   

Changes in Goods or Services

Inserting provisions into a contract that allow a supplier to change or alter what the purchaser is looking to buy after the fact is another example of an unfair term. 

Your Rights to Challenge Unfair Terms

Under UK law, any person who believes they are being subjected to an unfair contract is able to challenge a contract’s enforceability if they believe they are being subject to an unfair term. It is wise to seek legal advice if you think you are being subject to an unfair contract term. 

Key Takeaways

A contract will be unenforceable if you can prove one party was not acting in good faith to secure a significant imbalance of one parties’ rights and benefits under that agreement. Unfair contract terms can include provisions that:

• give parties an imbalance of rights to the detriment of another;
• include provisions that negate business liability for death, accidents or faulty goods;
• allow parties to change the price or nature of goods without your consent; or
• imply excessive cancellation fees.

It is also advisable to get a lawyer’s advice if you think you are being subjected to an unfair contract term. If you need more advice on unfair consumer contracts, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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