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Last edited 25 Jul 2015
Unfair contract terms act
The Unfair Contract Terms Act 1977 came into force in 1978 and is divided into three sections with Part I being applicable to England and Wales, Part II to Scotland and Part III to the UK as a whole. Typically, it is used alongside the Unfair Terms in Consumer Contract Regulations 1999, the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982.
In general, businesses are assumed to be free to enter into any contracts they wish to do so between themselves. However, the Act places a number of restrictions on the contract terms that can be agreed between businesses. It defines the rules for the ways in which vendor businesses can use exclusion clauses to limit liability in certain areas. There is also express coverage of indemnities and the Act extends its coverage to non-contractual notices excluding or restricting liability for negligence. The Act does not examine whether a contract is unfair generally.
The Act is generally only relevant to ‘business liability’, applying to contracts made in the course of business. It is not therefore relevant to private transactions made between individuals. In addition, it is not applicable in certain circumstances including employment contracts, contracts relating to interests in land, or contracts regarding intellectual property rights. Where the Act is considered to apply, some sections apply differently depending on whether the purchaser is a consumer or another business, as generally consumers will benefit from a greater level of protection than a business.
Consumer contracts involve purchasers acting outside of the course of business. The product being sold will be of a type ordinarily supplied for private use or consumption, and it will be supplied by a person who is acting in the course of business. A business on the other hand includes "a profession and the activities of any government department or local or public authority". If the purchaser asserts that he or she is a consumer and the supplier disputes this, then it will usually be the responsibility of the supplier to show that the purchaser is not a consumer.
The Unfair Contract Terms Act is relevant in the following situations:
- In cases involving negligence.
- Contracts in which one party is the consumer or acts on the other's written standard terms of business.
- Contracts for the sale of goods or hire purchase or other contracts under which possession or ownership of goods passes.
- Contracts requiring someone who deals as a consumer to indemnify another.
- Where there is a 'consumer guarantee'.
- Where there is an attempt to evade the operation of the Act through a term in a second contract.
- Death or injury - under any circumstances.
- Losses caused by negligence - unless to do so is 'reasonable'.
- Defective or poor quality goods - unless to do so is 'reasonable'.
- The test of reasonableness.
There is no definition within the act of the term ‘reasonable’ and the court (or other decision maker) will take several factors into account in deciding whether to uphold the clause. Under Section 11, the court must take into account the "circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made". Therefore, any subsequent developments in the trading relationship, or the losses caused by any breaches, are not relevant. In addition, Section 11(5) puts the burden on the party seeking to uphold the exclusion clause to show that it was a reasonable clause to include at the time of the contract. There are other considerations that apply to specific scenarios also.
 Find out more
 Related articles on Designing Buildings Wiki.
- Caveat emptor.
- Construction contract conditions.
- Housing Grants Construction and Regeneration Act.
- Modifying clauses in standard forms of construction contract.
- Scheme for construction contracts.
- The Late Payment of Commercial Debts Regulations 2013.
 External references
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