Practical Law

The Consumer Rights Act 2015 (CRA) is now in force. This is a significant piece of legislation for consumers and retailers alike, but how will it impact on construction contracts? Traders involved with domestic work for individuals will need to carefully consider the new rules as they may not be limited to small scale domestic projects.

Time for retailers to dust off those Ts and Cs

As many readers will be aware, the CRA came into force on 1 October 2015. It applies to all business to consumer contracts entered into after this date.

Its main aim is to tidy up the familiar existing consumer protection rules and to clarify them for both consumers and businesses. It also introduces new provisions in relation to digital transactions and products, remedies available to consumers and unfair contract terms. The CRA bites where a business (trader) supplies goods, digital content or services to a consumer (an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession).

There have been many reports of traditional consumer-facing businesses, such as retailers, spending the summer dusting off their standard Ts and Cs to check that they comply with the CRA. However, what does all this mean for construction contracts?

This won’t affect construction contracts, will it?

The starting point is that the CRA only affects construction business to consumer contracts, so those who are only involved in construction business to business contracts can look away now. The most obvious example of affected construction contracts will be those for domestic projects such as snazzy house renovations. So contractors and consultants (in the CRA’s parlance, “traders”) who work on domestic projects will need to take note.

What key points will affect construction “traders”?

The CRA introduces a number of new rules which may come as something of a surprise to traders carrying out construction works. For example:

• Pre-contractual statements: voluntary statements made by a trader pre-contract may have contractual status. As long as the statements have influenced the consumer, it will no longer need to show that they form part of the contract in order to rely on them.
• Repeat performance: the consumer may demand repeat performance of services if the trader fails to carry out the works with reasonable skill and care or in line with information provided.
• Price reduction: the consumer may be entitled to a price reduction if the trader fails to carry out the work (or any repeat performance) in a reasonable time.
• Limitation of liability: there is now a ban on excluding liability for failing to carry out the works with reasonable skill and care. Provisions that limit the trader’s liability to an amount less than the contract price are also banned.
• Approved ADR providers: there are new requirements for traders to direct consumer clients to an approved alternative dispute resolution (ADR) provider.

It may be thought that providers of consumer standard form contracts, such as JCT, would be queuing in the streets with new guidance and amendments to reflect the CRA.  However, so far there has been a curious silence. As yet, only RIBA has issued guidance to architects. It will be interesting to see if JCT follows this lead with further guidance in relation to its home owner building contracts. In the meantime, traders would be well advised to check their normal terms and conditions to make sure that they comply with the new legislation.

How far might the CRA’s influence extend?

To many readers of this blog, small works carried out at residential properties may be of limited relevance, and the CRA therefore seemingly of no consequence. However, it is worth considering the extent to which these rules may extend beyond such small scale projects.

For example, we are seeing an increasing trend in the London market for large scale renovation of luxury residential properties. These projects can often be significant in scope and value, and based on forms of contract more targeted towards commercial schemes.

The “client” for these works is usually an off-shore entity of some sort, reflecting the ownership of the property. However, ultimately, the works are often not carried out for a developer looking to sell on the finished renovation, but for the wealthy owner looking to make improvements. Could this type of project fall within the CRA’s ambit?

The Court of Appeal decision in Feldarol Foundry plc v Hermes Leasing (London) Ltd would seem to suggest that this may be the case.  Here, a public limited company (Feldarol) purchased a car for the use of its managing director from another limited company (Hermes). Despite the fact that the two contracting parties were both incorporated entities, the Court of Appeal confirmed the first instance decision that Feldarol was “acting as a consumer” for the purposes of the Unfair Contract Terms Act 1977 (UCTA), and so UCTA therefore applied.

Given that the definition of “consumer” under the CRA is slightly wider than that in UCTA, it remains a distinct possibility that the CRA could cover significant residential refurbishment projects, even if procured by a corporate body, where the works are ultimately being carried out for an individual.

Not making waves but watch this space

While the CRA may not be causing huge ripples of guidance to issue forth from the providers of consumer standard form contracts, traders carrying out construction work for individual “consumers” still need to be aware of and comply with the new rules. So too do those corporate entities who may fall foul of Feldarol and be classed, albeit unintentionally, as a “consumer”. The key is to check whether the new rules apply to you and, if they do, to make sure your contract is compliant.