Bond Pearce

In a recent statement, the FSA has confirmed the OFT guidance on unfair terms in tenancy agreements and has made it clear that it expects FSA authorised insurance intermediaries to make sure they are not selling such policies because of unfair mandatory contents insurance clauses in tenancy agreements.

The OFT has enforcement powers in relation to the Unfair Terms in Consumer Contracts Regulations 1999 which apply to tenancy agreements entered into by a landlord with tenants.  Where an unfair provision is contained in a tenancy agreement, it will be unenforceable against the tenant.  The 2005 guidance deals with a wide range of different potentially unfair provisions in letting agreements, including in relation to deposits and landlord covenants but also makes it clear that insurance of personal belongings should be a choice for the tenant.

'Unnecessary insurance requirements - we consider that whether tenants wish to insure their own personal belongings is a matter for them and that it is unreasonable for the landlord to make this a contractual requirement.'

The FSA issued its statement to firms, having become aware of an insurance intermediary deciding that it was an unfair sales practice to sell tenants contents insurance where it was mandatory under the terms of letting agreements.  The firm in question carried out a review of letting agents it dealt with and, where there was a mandatory insurance term, worked with them to have their terms amended and to get them to make explicit statements in sales scripts that tenants cannot be required to take out contents insurance in this way.

Insurance intermediaries selling insurance to individual tenants will need to undertake some due diligence in relation to the standard terms of the letting firm who introduces the tenants to the insurance firm to ensure that it is not profiting from the unfair requirement.  It may be necessary to consider undertaking a past business review to establish what sales of insurance may have been unfair to tenants in this way.  Where firms have sold insurance to tenants on introductions from letting firms which made it mandatory, it is likely to be in breach of the Treating Customers Fairly Principle.  FSA Principle 6 requires firms to take account of their customers' interests and to treat them fairly.  Knowingly selling insurance to tenants on the basis of mandatory clauses may lead to enforcement action by the FSA or could possibly amount to a breach of the Consumer Protection from Unfair Trading Regulations.  Even where insurance is not mandatory under the tenancy terms, it may be useful to disclose this to tenants introduced to the firm.