Care home 102 – Careful contract wording required in order to increase care home fees

As the cost of living continues to rise, it is not surprising that many care home operators may wish to increase the fees that they charge to residents. However, a recent Court of Appeal case[1] highlights the importance of carefully drafting clauses that purport to reserve the right to increase prices during a contract term.

Facts of the case

Mr and Mrs Green ran a care home from 1983 until it was closed on 1 August 2008. The care home was owned by Mr and Mrs Green’s company, Amberley (UK) Limited (Amberley Ltd).

Between 1984 and 1993 a number of young people who suffered from moderate to severe mental illness became residents of the care home. 12 of these residents had signed a “Contract of Residence” on entering the care home. The Contracts of Residence contained a number of standard terms, one of which was as follows:

Fees

The level of fees is subject to review as costs increase. No fee level is stated here as a standard, due to the reviews.

In April 2002, by virtue of s.50 of the Health and Social Care Act 2001, the existing liability of a number of residents to pay the fees for their residential accommodation became the liability of West Sussex County Council (WSCC).

The claim brought by Amberley Ltd

Amberley Ltd became embroiled in a dispute with WSCC between 2002 and 2008. It claimed that the costs of providing care to the residents had increased and that they were entitled, by the contract term highlighted above, unilaterally to raise their fees to pay for this increase. Amberley Ltd argued that WSCC was obliged to pay these increased fees for each of the residents. By 2008, Amberley Ltd stated that WSCC had “underpaid” fees totalling £86,755.47.

At the High Court hearing, Field J rejected Amberley Ltd’s argument that it was entitled unilaterally to raise the fee payable under the terms of the Contracts of Residence. He held that “…there was no right vested in Amberley Ltd unilaterally to charge the fees for which it has invoiced WSCC in the period 2002 to 2008. In addition, there is no basis for concluding that the residents agreed to pay the fees for which Amberley Ltd invoiced WSCC”.

The appeal

Amberley Ltd appealed against Field J’s decision. It was argued that, on their true construction, the terms of the Contracts of Residence gave Amberley Ltd the right to put up the fees for those residents in line with increases in the costs of their care at the care home and that each of the residents was contractually obliged to pay the fees as determined by Amberley Ltd. It was accepted that the fees could not be increased dishonestly, arbitrarily, capriciously or unreasonably. However, subject to those limitations, it was submitted that Amberley Ltd had the right to increase fees in accordance with increased costs when it chose. Further, by virtue of s.50(6) of the 2001 Act, the liability of the residents to pay increased fees became the liability of WSCC as from April 2002.

In considering the appeal, the Court of Appeal said that the first question to ask was whether the sentence in the Contracts of Residence that stated “The level of fees is subject to review as costs increase” gave Amberley Ltd the right, unilaterally, not only to increase the fees payable by the residents that were subject to the contract, but also to enforce payment of that increase. Did the parties to the contract, objectively, intend to grant to Amberley Ltd the right unilaterally to increase the fees, which the residents would then be obliged to pay?

The Court of Appeal said that such a provision in a contract would be unusual and, in general, clear words would be required to achieve that result. The term in the Contracts of Residence that “the level of fees is subject to review as costs increased” was short and brief. It did not state expressly who would perform the “review”, or how often, or on what particular basis other than the fact that fees would be reviewed “as costs increase”. There was nothing in the term, either in itself or in conjunction with the other terms of the contract, which gave Amberley Ltd an express right unilaterally to declare an increase in the fee and then enforce it upon the other party to the contract.

The Court of Appeal concluded that the term meant just what it said, i.e. the level of fees would be subject to a “review” if costs increased. It did not give Amberley Ltd the power unilaterally to demand or enforce payment of increased fees. If Amberley Ltd had wanted to increase the fees, it should have obtained the agreement of the resident concerned so as to vary the contract between the parties. The appeal failed.

Comment

This is an important case for care home operators to be aware of. It is clear that the courts will look closely at clauses that seek to permit fee increases. These must therefore be carefully drafted. If a unilateral right to increase clause is intended, then the clause must state this specifically. Otherwise, there is a risk the courts will give the clause a narrow interpretation and rule that it is not unilateral.

 


Footnote
[1] Amberley (UK) Ltd v West Sussex County Council [2011] EWCA Civ 11


Disclaimer

This briefing is for guidance purposes only. RadcliffesLeBrasseur accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.