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Ally Tow
Ally Tow,
Consumer contracts - do recent findings apply to you?
06 October 2016

Do you have gym or spa contracts with customers for a minimum period or contracts with customers that prevent them from switching providers – for example, for events? If so, this article will be of interest to you.

Latest figures disclosed at the end of September 2016 by the CMA suggest that gym users have saved in the region of £37,000,000 over 3 years (benefitting around 750,000 gym members) as a result of the changes brought about by the OFT’s investigations. Contracts are generally no longer for more than 12 months and they can be cancelled if a gym user’s circumstances change – for example, a member moves away from the area, loses their job or cannot use the gym any longer due to injury/illness.

In 2011 the High Court considered a case brought by the Office of Fair Trading (“OFT”) against Ashbourne Management Services Ltd (“Ashbourne”) & its directors, Mr and Mrs Clayton-Wright wherein the OFT alleged Ashbourne’s practices contravened The Consumer Credit Act 1974 (“the CCA”), the Unfair Terms in Consumer Contracts Regulations 1999 (“the UTCCR”) and the Consumer Protection from Unfair Trading Regulations 2008 (“the CPUTR”).

Ashbourne provides gym membership management, recruitment and retention services for hundreds of gyms and health and fitness clubs, particularly those with a “low monthly subscription” and the OFT’s investigations revealed that it advised those gyms to adopt agreements with their members with minimum membership periods of 12, 24 or 36 months. This practice, coupled with the approach that Ashbourne adopted to members who had fallen behind with their payments or who wished to terminate their agreement before the end of the minimum membership period, were particular areas which caused concern to the OFT.

The High Court agreed that various aspects of Ashbourne’s agreement were unfair contrary to the UTCCR and further that Ashbourne had engaged in unfair commercial practices contrary to the CPUTR. The two most significant types of clauses held to be unfair by the Court were:

  • Terms which imposed a minimum membership period of 12 months without giving gym members the right to terminate the agreement in certain circumstances; and
  • Minimum term contracts longer than 12 months where the consumer could not give 30 days’ notice to cancel and pay a modest sum in compensation.

As a result, the High Court ordered Ashbourne to cease using certain terms. Following the hearing, the OFT urged all gym operators to review their contract terms to ensure they were fair and lawful under consumer protection law.

In 2013, having continued to receive further complaints from gym users, the OFT conducted another investigation, as a result of which 6 other gym operators agreed to give members better cancellation rights and to make their contract terms easier to understand – another 20 were warned to review their terms and ensure they were fair.

More recently, a further evaluation has been carried out by the Competitions and Markets Authority (“CMA”), the CMA having taken over some of the OFT’s consumer enforcement powers. 

Overall, the evaluation has shown that the approach taken by the OFT has secured lasting change in the sector and brought considerable benefit to consumers which can also be applied to future work of the CMA.

Whilst the initial investigation by the OFT centred solely on gym memberships it is clear from the continuing work and the latest evaluation by the CMA remains committed to ensuring that no contract unfairly locks in consumers or prevents them from switching providers and it continues to work with a number of sectors to improve terms – one such area is wedding and event venues. It is therefore important that all businesses entering into contracts with consumers take time to review their contracts to ensure these remain compliant with current consumer protection law.

 For more information about the issues in this article or to find out more about how the Leisure and Hospitality sector can help you please contact Ally Tow on 0118 952 7711 or email [email protected].

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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