Sale of Goods Act 1979

Applies to: contracts for the sale of goods

A1.1 This implies terms into contracts for the sale of goods regarding title (section 12), correspondence with description (section 13), quality and fitness for purpose (section 14) and sale by sample (section 15). For the purposes of the Act, goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances. Section 14 implies a term that where the seller sells goods in the course of business and the buyer, expressly or by implication, makes known to the seller any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract will be reasonably fit for that purpose.

Supply of Goods and Services Act 1982

A1.2 This covers contracts for work and materials, contracts for the hire of goods and contracts for services. Most construction contracts come under the category of ‘work and materials’ and the Act implies terms into these equivalent to sections 12 to 15 listed in paragraph A1.1 with respect to any goods in which the property has been transferred under the contract. So, as above, any materials supplied should be reasonably fit for their intended purpose, provided always that the buyer is relying on the supplier’s skill and judgement. (If the buyer specifies a particular material then this would be sufficient to show that it was not relying on the seller.) For services, the Act implies terms regarding care and skill, time of performance and consideration. For example, section 14 implies a term that where the supplier is acting in the course of business, the supplier will carry out the services within a reasonable time, provided of course the parties have not themselves agreed terms regarding time.

Contracts (Rights of Third Parties) Act 1999

A1.3 This Act entitles third parties to enforce a right under a contract, where the term in question was intended to provide a benefit to that third party. The third party could be specifically named or it could be an identified class of people. For example, if a contract to execute work on a property named a prospective future tenant as a beneficiary of that contract, the tenant may be able to bring a claim if the work is done incorrectly. The Act, however, allows for parties to agree that their contract will not be subject to its provisions.

Defective Premises Act 1972

A1.4 This applies where work is carried out in connection with a dwelling, including design work. It states that ‘A person taking on work for or in connection with the provision of a dwelling … owes a duty … to see that the work which he takes on is done in a workmanlike or, as the case may be, professional manner, with proper materials and so that as regards that work the dwelling will be fit for habitation when completed’ (section 1(1)). This appears to be a strict liability, and is owed to anyone acquiring an interest in the dwelling.

Housing Grants, Construction and Regeneration Act 1996

Applies to: construction contracts, except where one of the parties is a ‘residential occupier’

A1.5 The Housing Grants Act 1996 applies to most construction contracts (the term ‘construction contract’ is given a wide definition, and includes contracts for services only or for building work, and applies to a large range of types of work, including demolition works, services installations and repair work, as well as new buildings, extensions and alterations). The Act requires that construction contracts include specific terms relating to adjudication and payment:

• the right to stage payments;
• the right to notice of the amount to be paid;
• the right to suspend work for non-payment;
• the right to take any dispute arising out of the contract to adjudication.

A1.6 If the parties fail to include these provisions in their contract, the Act will imply terms to provide these rights (section 114) by means of the Scheme for Construction Contracts (England and Wales) Regulations 1998.

A1.7 However, there is an important exception; it does not apply to projects where one of the parties is a ‘residential occupier’. The residential occupier exception applies to projects for which the primary purpose is beneficial use by the client as a residence (section 106). This would include buildings that the client is occupying or intending to occupy as its main residence, and might also include a second home if the client is the main user and there is no intention to use it as a holiday let (Westfields Construction Ltd v Lewis). However, work to buildings in the grounds of a residence that will not be lived in by the client, or work to divide a property into flats where only one flat will be retained by the client, will not fall under the exception (Samuel Thomas Construction v Anon). Similarly, work on other residential properties, for example for landlords, local authorities or housing associations, will usually be covered by the Act.

Unfair Contract Terms Act 1977

Applies to: only to B2B (or C2C), not business to consumer

A1.9 This has the effect of rendering various exclusion clauses void, including any clauses excluding liability for death or personal injury resulting from negligence, any clauses attempting to exclude liability for Sale of Goods Act 1979 section 12 obligations (and the equivalent under the Supply of Goods and Services Act 1982), and any clauses attempting to exclude liability for Sale of Goods Act 1979 section 13, 14 or 15 obligations (and the equivalent under the Supply of Goods and Services Act) where they are operating against any person dealing as consumer. It also renders certain other exclusion clauses void in so far as they fail to satisfy a test of reasonableness; for example, liability for negligence other than liability for death or personal injury, and liability for breach of section 13, 14 or 15 obligations in contracts which do not involve a consumer.

Consumer Rights Act 2015

Applies to: only to B2C

A1.10 This Act, which came into force on 1 October 2015, consolidates much of the pre-existing legislation on consumer protection, and introduced some significant new provisions. It replaced the sections of the Unfair Contract Terms Act 1977 that relate to consumers, and repealed the Unfair Terms in Consumer Contracts Regulations 1999. It applies to contracts and notices between a ‘trader’ and a ‘consumer’. A ‘consumer’ is defined as ‘an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession’ (section 2(3)).

A1.11 The Act applies to a wider range of contracts than other legislation commonly encountered by construction professionals. For example, under the Housing Grants Act 1996 (as amended) only contracts with a residential occupier are excluded. It is therefore quite possible that the Consumer Rights Act will apply to a contract that is excluded from the Housing Grants Act 1996 (e.g. where an individual undertakes work to a domestic property that is not the individual’s main residence).

A1.12 The Act states that any contract for services is to be treated as including a term that the trader must perform the service with reasonable care and skill (section 49(1)). In addition, if the contract does not provide for a price or timescale, it is taken to include a term that the services will be provided for a reasonable price (section 51), and within a reasonable timescale (section 52). Goods supplied under such a contract must also be of good quality.

A1.13 Part 2 sets out the law regarding unfair terms in relation to consumers. Section 62(1) states that an unfair term of a consumer contract is not binding on the consumer. The test for ‘unfair terms’ in the Act is the same as that in the 1977 Unfair Contract Terms Act: it provides that a ‘term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer’ (section 61(4)). An ‘indicative and non-exhaustive list’ of examples of what might be considered unfair terms is set out in Schedule 2 to the Act. This includes, for example, any term which has the object or effect of excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy, which would include an arbitration agreement.

A1.14 The most significant change relates to terms specifying the main subject matter of the contract or setting the price. These terms are not subject to the ‘fairness’ test provided that they are both transparent and prominent (section 64(1) and (2)). ‘Transparent’ is defined as being ‘in plain and intelligible language and (in the case of a written term) is legible’ (section 64(3)) and ‘prominent’ as ‘brought to the consumer’s attention in such a way that an average consumer [who is reasonably well-informed, observant and circumspect] would be aware of the term’ (section 64(4) and (5)). The new Act no longer makes an exception for terms that have been ‘individually negotiated’ as had been the case in the Unfair Terms in Consumer Contracts Regulations 1999.

Unfair Terms in Consumer Contracts Regulations 1999

A1.15 Repealed – entirely replaced by the Consumer Rights Act 2015 for any contract entered into after 1 October 2015. Essentially, these provided that terms that significantly affect the balance of rights between the parties, and which are not individually negotiated, may be deemed unfair and therefore void.