Lender's Inconsistent Standard Terms Not Incorporated Into Contract

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...