Parties to a contract which incorporates one party’s standard terms must make sure the contract and terms are consistent and can be fairly and sensibly read together – or risk the court finding that inconsistent provisions will not apply.
An individual took out a buy-to-let tracker mortgage by accepting a formal offer made by a mortgage company as set out in the Offer letter. The mortgage was for 25 years. The interest rate was fixed for the first two years, and after that the Offer said the rate payable would be 1.99 per cent above the Bank of England base rate.
The Offer said that the bank’s standard conditions applied, but that if there was an inconsistency between the standard conditions and the Offer, the Offer terms would prevail.
The mortgage company later increased the interest rate to 3.99 per cent over the Bank of England base rate. It relied on terms in its standard conditions which said it could increase the variable rate of interest for any reason, including to reflect market conditions generally.
The borrower argued that the common understanding of a tracker mortgage was a mortgage under which the interest payable would only change if the Bank of England base rate changed. Describing his mortgage as a tracker mortgage in the Offer therefore meant that the additional rate over and above the Bank of England base rate – the 1.99 per cent rate – was not variable. The clauses in the standard conditions which purported to allow the lender to vary the 1.99 per cent interest rate were therefore inconsistent with the Offer – the Offer and terms could not fairly and sensibly be read together (taking into account reasonableness and business common sense) – and therefore did not apply.
The Court of Appeal agreed with the borrower’s understanding of a tracker mortgage. It ruled that:
• The Offer had clearly indicated the interest rate payable and had given no indication that the 1.99 per cent element of the rate could be changed
• This interest rate was an integral part of the description of the product, and if the standard conditions allowed the mortgage company to change the interest rate for a reason other than a change in the Bank of England base rate, that would be giving it the power to provide a completely different product
The relevant clauses in the standard conditions were therefore inconsistent with the Offer and did not apply.
The same reasoning would apply to any contract, not just mortgages.
• Parties to a contract which incorporates one party’s standard terms must make sure the contract and terms are consistent (ie that they can be fairly and sensibly read together), or risk the court finding that inconsistent provisions in one of them do not apply
Case ref: Alexander (as representative of the “Property 118 Action Group”) v West Bromwich Mortgage Company Ltd  EWCA Civ 496
Jonathan Waters is the founder of Helix Law. Before qualifying as a Solicitor he worked in industry and in investment banking for over a decade. He was also the Partner in charge of Commercial Litigation, Employment Law and Property Litigation at Stephen Rimmer LLP. Jonathan has wide experience of helping and advising businesses to avoid or to deal with commercial disputes and in particular construction disputes.
This article is written to raise awareness of the issues it discusses and it may not be updated after it is first written, even if the law changes. It is not intended to be legal advice and cannot be relied on as such. Helix Law is not responsible or liable for any action taken or not taken as a result of this article. If you think the matters set out affect you and you wish to apply them to your particular circumstances then we are happy to give you free initial telephone advice.