Foxtons – Reclaiming Fees

Landlords could be set to reclaim thousands in letting agency fees as a result of a recent legal case.

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Many landlords have been waiting with bated breath over the recent legal case between Foxtons and the Office of Fair Trading (OFT) over whether Foxtons letting agency agreement was unfair.

The contract which charged landlords in central London an 11% commission when a tenant continued to occupy a property for longer than the initial lease even though they did nothing to facilitate this or were no longer involved in the on going management of the tenancy. The contract also required the landlord to pay 2.5% of the sale price if the tenant agreed to buy the property from the owner.

The landmark judgment by Mr Justice Mann on Friday ruled that the agency agreement made by Foxtons, unfairly overcharged commission to landlords. The Judge described Foxtons’ agreement as representing a ‘trap’ or ‘timebomb’ in the way they bought to the landlords attention such important obligations. He also found that Foxtons had used language in its contracts which is not ‘plain and intelligible’.

In a press release by the OFT they highlighted the fact that in his judgement, Mr Justice Mann accepted that all the terms the OFT bought before the court were unfair, including Foxtons’ use of terms:

• requiring a landlord to pay substantial sums in commission, where a tenant continues to occupy the property after the initial fixed period of the tenancy has expired – even if Foxtons plays no part in persuading the tenant to stay, and does not collect the rent or manage the property
• requiring a landlord to pay commission to Foxtons even after it had sold the property
• allowing Foxtons to receive a full estate agents’ commission for sale of the property to a tenant.
As a result of this ruling, made in proceedings brought by the OFT under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs), the OFT now intends to ask the High Court to go on to grant injunctions preventing the continued use of the terms by Foxtons.

Reclaiming of repeat letting agent fees by landlords.

This ruling could potentially open the flood gates to landlords reclaiming millions of pounds of letting agent fees over the lifetime of ‘unfair’ agreements. For example that a landlord renting out a typical two bedroom property in London costing £20,000 a year would have paid £2,200 per year in commission. Over a 6 year letting period this would have accounted to £11,000 of ‘unfair’ fees on a 1 year assured shorthold tenancy.

Commenting on the case Tessa Shepperson of Landlord Law states:

“This decision is very good news for landlords. It makes it clear that clauses providing for ongoing commission for renewals, and for sales to the tenant, will only be valid and enforceable if they are properly explained to the landlord at the time the agency agreement is signed, and also clearly set out both in the agency agreement itself (i.e. not buried in the ‘small print’) and the agents advertising literature.”

”Many landlords will already have been charged this commission in the past and will be looking to see if it can be recovered from their agents. If that agent is Foxtons, then the answer is probably yes! If the commission was paid to another agent, then it will depend on the circumstances. In particular on whether the landlord was made properly aware of the charge before signing the agency agreement. In most cases the situation will be similar to that in the Foxtons case, where the landlord was not specifically told about the charge and it was buried in the small print. In which case the clause will almost certainly be found void under the regulations, and I see no reason why the landlord should not be able to reclaim commission.”

In a note to the press release the OFT seem confident that this case will hold up for landlords with similar agreements with other letting agents.

The UTCCRs apply to standard contract terms with consumers. The UTCCRs protect consumers against unfair standard terms in contracts they make with traders. The OFT, and certain other qualifying bodies (such as local authority Trading Standards, national regulatory bodies, and Which?) can take legal action to prevent the use of potentially unfair terms. A term is likely to be considered unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract, to the detriment of consumers. The regulations say that a consumer is not bound by a standard term in a contract with a trader if that term is unfair. Ultimately, only a court can decide whether a term is unfair

A long way to go for landlords

However, landlords who are already doing the sums about how much they may be able to reclaim should be cautioned that it may not be all plain sailing.

For a start it is rumoured that Foxtons, along with other major letting agents are already putting together a case to appeal this judgment in the European Court of Justice. In addition the OFT ruling is non binding and the OFT needs to be successful in asking the High Court to go on to grant an injunction preventing the continued use by the terms by Foxtons. Mr Justice Mann concluded his judgment by saying:

“I therefore find all the relevant provisions to be unfair for the purposes of the Regulations. The parties are agreed that the consequences of that in terms of the relief to be granted should be the subject of further debate when my decision was known. There will be a further hearing for that purpose if the parties cannot agree on the point.”

Another uncertainty surrounding the case relates to the interpretation of whether the unfair terms relates to a landlord at all. This is because the regulations only apply the relationship between a consumer and a trader. Many would argue that a landlord is not a consumer but a trader in which case they would not be covered by the UTCCR at all. The implication of that being that a landlord who has signed an agreement with a letting agent should be bound by that agreement.

The only certainty that landlords are left with is that the debate and ramifications of this case will continue for many months to come. Property Hawk will continue to watch developments very carefully to see what actions landlords can take.

To see the full judgment on the case.

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