A contract ‘in perpetuity’ is one that does not have a specified end-date and is therefore capable of continuing indefinitely, or alternatively contains a term that expressly provides for this consequence.
Other agreements TESS has seen are stated to last for a specified number of years (for example 80 years) or until a specified future date (for example, 1 June 2050). We have also seen contracts that allow for an extension, for example, a timeshare right may last until 1 June 2050 and then, if a minimum proportion of owners in a timeshare ‘club’ agree (for example at least 75% of them), the obligation will continue for a further 80 years.
Note that the provisions in Unfair Contracts Terms Act (UCTA) relating to contractual liability to consumers do not extend to contracts relating to the creation, transfer or termination of interests in land (but will still apply where the consumer’s right to use timeshare arises from, for example, a club membership).
In the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR’s), Schedule 2, paragraph 1(q).UTCCRs, regulation 9. 28 3.13 As a general starting point, there is no clear rule under UK contract law that prevents a contract from continuing in perpetuity, or for any particular length of time, if that is actually what the parties have agreed.
However, it does not appear to be the modern approach of the courts to treat contracts of indefinite duration as being perpetual in nature. Using the twin techniques of construction and implication, the courts may cut down perpetual contacts and find instead that they are contracts for indefinite periods, albeit terminable upon notice being given. For example, (the Court of Appeal has held that a contract for the supply of lamp oil as needed was terminable on notice because it might be the case that no oil was needed at all at a particular time).
A significant question is whether a court would agree that a consumer may withdraw from a timeshare agreement that does not expressly provide for this eventuality: If, as a matter of construction, the parties have intentionally and expressly set up a contract to last in perpetuity, or for a very long period, then a court may be unwilling to imply a term that permits one of the parties to terminate the contract on notice. However, in such a situation there is likely to be a robust argument (in particular given the nature of timeshare) that a perpetuity clause is unfair.
For example, in the absence of adequate pre-contract explanation from businesses (as required by the CPRs), consumers may not fully understand the serious implications of what they are agreeing to.
Where the contract is silent on duration, a court may well imply a term allowing termination on notice (unless there is clearly no basis for such an implication given the circumstances and other express contractual terms).
Regardless of whether or not the parties have made a positive decision to make the agreement perpetual or long-term, the relevant term may still be considered unfair under the UTCCRs. For example, where consumers take on obligations that will last very far into the future, it may be difficult for them to assess (when they enter into the agreement) what the whole-life costs and benefits will be; also, their circumstances may change in unforeseen ways, rendering continued use of the product/service burdensome. Crediton Gas Co v Crediton Urban Council  Ch 447. 44 See Staffordshire AHA v South Staffordshire Water Works  1 W.L.R. 1387. 29 3.17
It may also be the case that the consumer is already elderly when they enter the agreement, making it potentially unfair for the consumer to be bound by such a long terms. Furthermore, the court is likely to have regard to such factors as: whether the consumer has already paid a substantial sum for their timeshare, whether the business that drew up the contract has exploited consumers’ behavioural biases, or even mis-sold the contract, and all of the other terms and circumstances of the contract which may lead to the conclusion that the consumer, if properly advised, would not have agreed to the perpetuity / long-term clause if given the choice.
In summary, it is TESS’s view that there may be scope for in-perpetuity and long-term clauses to be challenged for unfairness under the UTCCRs, particularly where the end-date is open-ended or where the agreement is likely to expire after the consumer’s own death. In our view, the recommendation of or reliance on unfair terms may also be an unfair commercial practice under the Consumer Protection Regulations (CPRs). Restrictions on which owners can leave
Some timeshare schemes, either as a contractual right or at the developer’s or owner committee’s discretion, may allow owners to exit, but only in very limited, narrow circumstances. The key question is whether a court would allow the consumer to exit the contract in a wider range of circumstances and if the relevant contractual terms create a significant imbalance between parties’ rights and obligations under the contract, to the detriment of consumers.
It is TESS’s view that these sorts of restrictions may be open to challenge under the UTCCRs not least because, when agreeing to potentially long-term contracts such as timeshare, consumers tend to overestimate how often, or for how long, they will derive benefit from that product/agreement. Unforeseen circumstances may also make continued use of the product impractical or unaffordable.
For example, “a court is likely to consider it relevant that, over time, people are highly likely to eventually face circumstances such as illness, injury, loss of livelihood, financial hardship or old age, which makes travelling to the property impractical or even impossible” (for instance some people are no longer able to travel or obtain insurance due to ill health). There are therefore likely to be other See, in particular, paragraphs 164, 171, 174 and 175 of the Court’s judgment in Office of Fair Trading v Ashbourne Management Services Ltd and others  EWHC 1237 (Ch) at www.bailii.org/cgibin/markup.cgi?doc=/ew/cases/EWHC/Ch/2011/1237.html&query=ashbourne&method=boolean.
Circumstances in which a consumer ought to be able to exit the contract, that is not reflected in terms which restrict exit to very specific circumstances.
Further, consumers ought not to be prevented from exiting the contract (and suing for damages, if relevant) where the business commits a fundamental breach of the contract. Terms which restrict consumers’ termination rights in these circumstances are likely to be considered unfair under the UTCCRs and not enforceable against the consumer.
Where a contract term is ‘unfair’ under the UTCCRs because it unfairly restricts the circumstances in which the consumer can exit the contract, then businesses that purport to rely on it (making consumers continue to pay management fees for instance) may commit an aggressive, misleading or otherwise unfair commercial practice under the CPRs.
Where a business has signed a consumer up to a significant long-term or perpetual agreement with no clear termination provision, failure to have in place at least a discretionary exit policy may, in some circumstances, be considered unfair under the CPRs, as an aggressive and/or generally unfair commercial practice. In the context of timeshare, given the age base of consumers and the often significantly longer length of agreements, we would consider it potentially unfair for businesses not to give proper consideration to reasonable exit requests where a change in circumstances makes it impossible or impractical for the consumer to continue to enjoy their timeshare.
A contractual term will also be assessable for unfairness under the UTCCRs where it gives businesses the right to dissolve the contract on a discretionary basis, where the same facility is not granted to the consumer
In summary, it is TESS’s view that narrow restrictions on which owners can leave timeshare may be open to challenge under the UTCCRs and CPRs. Office of Fair Trading v Ashbourne Management Services Ltd and others  EWHC 1237 (Ch). We recognise that there may be situations where a consumer’s inability to exit timeshare stems from a refusal by the owner committee in an owner-run resort. However, this does not mean that consumers lose their statutory protection in these circumstances. Where owner committees are acting in accordance with rules and conditions placed upon them by developers or management companies (or where those parties sit on or influence the decisions of the owner committee), then consumer protection law will still be applicable. It is also arguable that the owners sitting on the committee are in fact acting for business purposes themselves (that is, running the resort), or, are acting on behalf of the developer (and are therefore a ‘trader’ for the purposes of consumer protection legislation).
UTCCRs, Schedule 2, paragraph 1(f). 31 Restrictions on how owners can leave
Some timeshare schemes, either as a contractual right or at the developer’s or owner committee’s discretion, allow owners to exit, but only if specific conditions are met (for example, if the timeshare is sold through a particular resale company of the business’s choice or if the owner uses a notary).
It is TESS’s view that terms which restrict how owners can resell or dispose of their timeshare have significant potential for unfairness under the UTCCRs and may therefore not be binding on the consumer.
In considering whether such a term is unfair, a court is likely to have regard to whether the term: “requires the owner to sell their rights through a single resale company”. Businesses may, of course, recommend a particular service provider, but insisting that one provider is used may put the consumer at a considerable disadvantage and limit the likelihood of disposal requiring the owner to sell / transfer their rights only to a narrow pool of potential buyers, for example only to other existing owners and/or family members and/or the developer. Given the current state of the market, this may put consumers at a considerable disadvantage.
In the situation where restrictions are not expressly written in the contract or any associated club/resort constitution, but have been introduced as the business’s standard policy when dealing with owners’ requests to exit (for example, where this is done over the telephone), the UTCCRs may still apply to those oral policy terms.
Further, the business’s practices may be considered ‘aggressive’ under the CPRs, in that the business exploits their position of power over the consumer to pressure them into selling through a particular party or to a particular type of buyer.
In these circumstances, the consumer may be pressured to take a decision to sell on unattractive terms or on conditions that they would not otherwise have agreed to.
Finally, the business’s commercial practice may also be considered generally unfair under the CPRs if it contravenes the requirements of professional diligence and materially distorts the behaviour of the average consumer This could be the case where contrary to the principle of good See Unfair Terms Directive, recital 11. 50 See CPRs, regulation 7. 51 CPRs, regulation 3(3). 32 faith, the business’s unduly restrictive discretionary exit policy (or contractual term to that effect) pressures consumers on perpetual or long-term agreements into staying or appreciably impairs the consumer’s freedom of choice as to whether, or on what terms, to dispose of their timeshare. In summary, it is our view that restrictions on how owners can leave timeshare are readily open to challenge under the UTCCRs and CPRs.
Posted on: 16th January 2017