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When the law of property development collides with consumer law!

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Some of the most satisfying cases, and also some of the most perplexing, come when other areas of law altogether raise their head in a property context. One such area is consumer law. There is a number of situations where parties to perfectly common property transactions might stand in the relationship of consumer and trader for the purposes of consumer law.

For instance, a purchaser of an off-plan flat from a housebuilder may well be a consumer. In such circumstance the Unfair Terms in Consumer Contracts Regulations 1999 will apply.  Usually the housebuilder will have provided a standard contract and said that no amendments will be accepted; often after recommending a solicitor who will advise the purchaser more cheaply ‘due to his/her familiarity with the development’. If so then, broadly speaking, the contract will be enforceable by the trader only to the extent that it is fair.

Are the terms of such a contract unfair? Very frequently they are – for example, often enough the buyer may have paid 30% or more by the time the flat is completed, and the contract provides that if the buyer cannot complete, perhaps because the market has dropped during a delay in completing the project which the contract allows the builder to escape liability for, the builder will be able to retain all of that money, even if it far exceeds his actual loss once he resells the property. Is that unfair? It seems very likely that it is, and if so, the entire clause may be struck down, leaving the seller only with his actual loss. We have had successful cases along these lines.

These off-plan developments are rich in new law. Another possibility is that they may even be collective investment schemes within the meaning of the Financial Services and Markets Act 2000. This approach has yet to be tested in a court, but the more extreme of these schemes, where the entire project is more or less funded by the ultimate purchasers, whose money is used indiscriminately for the benefit of the development as a whole, may very well be collective investment schemes. That means that their proponents require a licence, which they usually don’t have. And that, in turn, affords the customers the opportunity to rescind or void the contract entirely, or may do. The trouble with this notion is that usually by the time clients come to see you with these schemes it’s because the entire scheme has collapsed, and it’s not so much a case of voiding the contract and asking for your money back as looking to see whether professional advisers have let the client down (which they generally have, although not always actionably). But in the right case – one where the client wishes for their own reasons to extricate themselves from a still solvent scheme, for instance – this possibility might give sufficient traction to achieve that.

Another situation came up in the office recently – say a builder is doing work for a client (clearly a trader/consumer relationship). There’s a standard contract to make, say, a patio. The client however asks, as clients do, that the builder in addition digs a hole for a fishpond. When the bill comes in, the builder has added in an amount for the digging. Can he recover this?

You might think that this situation can be dealt with by ordinary contractual principles – sure no price was agreed for the fishpond, but if the builder reasonably expected to be paid then a quasi-contract will arise and he is entitled to be paid a reasonable amount.

That might very well be correct, but what of The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013. These provide at paragraph 40(1) that

“Under a contract between a trader and a consumer, no payment is payable in addition to the remuneration agreed for the trader’s main obligation unless, before the consumer became bound by the contract, the consumer gave his express consent’.

Well, what does that mean? Is the fishpond request a separate contract or quasi-contract, or is it a variation of the main contract? And if it is a variation of the main contract, doesn’t the regulation mean that nothing is recoverable?

Well, we don’t know the answer, frankly. It’s not likely this was the situation the regulation envisaged, we think – it looks more as though it was designed to prevent consumers agreeing to pay hidden extras they hadn’t properly noticed in the small print. But it does say that there shouldn’t be any payment beyond what’s agreed for the main obligation. Mightn’t that be what it means?

Sometimes an argument is all you need.