The Court of Appeal has held that where standard terms were inconsistent with those set out in a mortgage offer for a 25 year "buy-to-let" interest only tracker mortgage, they had not been incorporated into the contract.

We reported on the Alexander (as representative of the "Property 118 Action Group") v West Bromwich Mortgage Company Ltd case in February 2015. The details can be seen in our February litigation briefing. At first instance, the Commercial Court held that the two clauses in issue in the lender's standard mortgage conditions, which gave the lender the right to:

  • increase the variable rate of interest for any reason and
  • request repayment of the loan in full on the giving of one month's notice

were not inconsistent with the terms of the offer of loan and were therefore incorporated into the contract and effective.

The Court of Appeal disagreed. It held that it was the mortgage offer document (the Offer) that set out the terms and conditions of the particular mortgage and described and defined it.

The Offer gave a firm indication that the rate of interest would only be varied in accordance with (and so as to reflect) changes to the Bank of England base rate and that was entirely consistent with reasonable parties' general understanding of a tracker mortgage. The reference to the interest rate in the Offer was integral to the product description. If incorporated, the lender's standard conditions would provide the lender with the unilateral right to change the product and meant that there was no enforceable obligation on the lender to provide the product that had been agreed. The right to further vary the variable rate as the lender suggested should have been spelt out in the Offer.

If the clause enabling the lender to request repayment in full on one month's notice was incorporated, this effectively made the contract terminable at the lender's will even though there had been no default by the borrower. The alleged right to terminate was unqualified and unrestricted. The purpose of the contract was to provide a 25-year loan. The Offer made it clear that the sum was repayable in full at the end of the term and the borrower should ensure sufficient funds were then available to be able to repay it. This could not sensibly be read together with a term that provided for a right to require repayment on one month's notice where there was no default.

The Court of Appeal held that the standard terms were incompatible with the intent and purpose and specific terms of the Offer which reflected the agreement reached between the parties. They could not fairly or sensibly be read together with the Offer and were not therefore incorporated into the contract.

Things to consider

Where a printed standard term is inconsistent with what may reasonably be understood to be the main purpose or object of the contract, then it is likely to be found to be a term which cannot 'fairly' or 'sensibly' be read together with it. In the event of conflict, special conditions will normally prevail over general printed conditions unless expressly provided to the contrary. The terms the lender sought to include in this case were inconsistent with the object of the particular type of mortgage.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.