Foxtons were sued by the OFT claiming that three of their landlord agency agreement terms were unfair under the Unfair Terms in Consumer Contracts Regulations 1999 (see a summary of my blog posts here).

To remind you, these were the three clauses in issue:

• Renewal commission – where Foxtons were no longer acting as managing agents, but the agreement provided for commission to be paid so long as the tenant lived in the property
• Sales commission – where the property was eventually sold to the tenant found by Foxtons, and
• Third party renewal commission – where Foxtons claimed commission even after the property had been sold to someone else.

The Judge found for the OFT saying finding that the clauses were unfair, alhtough he stopped short of saying that renewal commission (the clause which is in most widespread use) was actually unfair per se.

Evaluation the Foxtons litigation

The Office of Fair Trading has been carrying out an evaluation exercise and has made some interesting findings:

£4.4 million benefit to consumers

This is worked out in various complicated ways (explained in the evaluation report) based on the fact that they are no longer receiving commission in respect of the three offending clauses, which they have now removed from their agreements.

This presumably must mean a similar loss to Foxtons (hence my headline) although no doubt they have made up at least some of the difference by imposing different charges (hopefully though not like this).

Also it seems that Foxtons are now actually telling people about the renewal commission clause (two years only at a lower rate, which the OFT have not objected to) which remains in their agreement, so that is also good. A bit of respect for the regulations.

Other letting agents following suit.

It seems that many have removed  similar clauses from their agreements and are telling customers about the ones which remain.

Empowering consumers

Then those landlords who are aware of the Foxtons litigation have become more savvy and are now asking relevant questions and shopping around more. Good for them!

So a positive outcome for consumers from the Foxtons litigation.

The OFT is now looking to build on this, and pursue agents who are still using these clauses (and apparently many still are).

Advice to landlords

So if you are a landlord, how will this all help you? Here’s my advice:

• First of all, it is essential that you read your agency agreement before you sign it. If you feel uneasy doing this under the beady eye of the agency staff, ask to take a copy home with you to check it over.

• Then, if you find one of these clauses, contact the agents and ask to have it removed. Tell them that such clauses are now considered unfair under the Unfair Terms in Consumer Contracts Regulations 1999. Most reputable agents don’t use them.

• If they refuse, then I suggest that you find another agent. If they are unwilling to change their agreements to comply with the law this does not bode well. What other legal obligations are they ignoring?

• You might also consider reporting the firm to the Office of Fair Trading, or your local Trading Standard office.

The case is Chesterton Global Ltd v. Finney, Lambeth County Court, 30 April 2010 (it has been previously reported on the Pain Smith blog).

Mr Finney’s property services management contract with Chesterton Global contained a clause relating to commission on renewal of the tenancy. Mr Finney failed to pay it and Chesterton sued.

The case came before District Judge Wakeham, who found that the clause was unfair under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR). The following points were made:

• Only consumers can benefit from this act. However, although the property was bought by Finney as an investment property, he only owned one such property, and the Judge held that he should be treated as a consumer.

• There was a ‘significant imbalance’ in the rights and obligations of Chesterton and Mr Finney which operated to his disadvantage. The tenancy agreement prepared by Chestertons contained an option to renew which would leave the landlord tied to a renewal at the tenant’s whim at a rental to be fixed by Chesterton’s themselves. The landlord would therefore be paying a commission on the basis of decisions made by the tenant and Chestertons.

• The relevant clause, although it was not hidden, was not written in clear language, and had not been sufficiently drawn to Mr Finney’s attention or explained to him before he signed the agreement. This was particularly important because of the substantial payments which would be due under the clause.

As well as confirming that the clause was unenforceable, the Judge also ordered that Chestertons repay previous commission paid. Pain Smith consider that this was a wrong decision. Their view is that a breach of the UTCCR makes a clause unenforceable, but that money paid under an unenforceable clause is not recoverable.

This may perhaps be technically correct, but if so, is extremely unfair. I suspect many Judges will agree and will try to interpret the law so that they can order money paid under an unfair clause to be repaid.

Agents would be well advised, if they want to include this sort of clause, to make the commission reasonable, and payable for a limited period only, such as two years, as in the Foxtons contract which was accepted by the OFT.

Do you know of any other cases where agents renewal commission has been looked at by the courts under the UTCCR?

OFT Victory in Foxtons unfair contract terms case.
This is my initial report on the case, and explains the judgment.

The OFT v. Foxton case – commission on renewals
This item looks specifically at what the judgment says on the question of commision on renewals, with reference to the status of these clauses now, and quotes extensively from the wording of the Judgement.

Letting agents – instead of renewal fees
This post discusses what some dishonest agents are doing to replace the renewal commission they are losing, and discusses also the ‘fiduciary duties’ of agents (which seem to have been forgotten by many agents).

Advice for landlords seeking to recover commisison post OFT v. Foxtons
This post gives some guidance to landlords on what they can do now (ie as at July 2009 to the date of this post) if they think they may have a claim against their agents as a result of the Foxtons case.

Foxtons to appeal decision in OFT unfair terms case
This announced the news that Foxtons intended to appeal the decision.

Foxtons withdraws appeal
Looking at the reasons why Foxtons decided not to proceed

Foxtons case concluded – now is the time for agents to review their agency agreements
Summing up and final comments.

An interesting case. It is shame that we could not have the benefit of the Court of Appeals views, as cases on the Unfair Terms in Consumer Contracts Regulations are rare and it is always good to get some guidance. However this is a very useful decision, and not just for agents contracts.

Foxtons have now made ‘significant changes’ to its standard terms and conditions which have satisfied the OFT

‘including making the liability to pay renewal commission more transparent, reducing the commission payable on renewal, and limiting it to two renewal.

Commission is also now only payable where the original tenant remains in occupation, and the landlord will get a pro rata refund where the tenant leaves the property before the date set out in his lease.’

The court order states (according to the OFT press release, although I have not seen the actual order yet) that the following should not be used in contracts with consumer landlords

• Terms which require landlords to pay renewal commission to agents after the sale of their property to a third party because the original tenant remains in occupation.
• Terms which require landlords to pay a sales commission to agents in the event they sell the property to their tenant.

Jason Freeman, Legal Director of the OFT’s Consumer Group said

“This case, and the changes Foxtons has now made, sends a wider message to letting agents and businesses in general that important terms, particularly those which may disadvantage consumers, must be clear, prominent and actively brought to people’s attention. Consumers should not be presented with a surprise bill for services they have not consciously agreed to.”

The OFT make it clear in the press release that they will be writing to letting agents, and will ‘take necessary steps’  if agents terms and conditions do not comply with the law.

It is strongly suggested therefore that all letting agents now undertake a review of their agency agreements, and instruct their solicitors to re-draft them, if there is any doubt as to their validity.

Note that this is not work that we do, however PainSmith are a good firm for this type of thing.

As pointed out by The Times, this also means that landlords who have paid commission in the past on clauses which have now been found to be unfair, could be entitled to reclaim their  money through the courts.

The two articles that I have seen are on the PainSmith Blog and on Estate Agent Todays news page.  I have not been able to find anything on the Foxtons site and a Google news search brings up little else.  However both the sites quoted are pretty reliable so I think we can take it that the Foxtons appeal is off.

Speaking as a lawyer, this is a great shame as it would have been a good opportunity for the Court of Appeal to clarify the law, not only as to what sort of clauses (in particular clauses regarding renewal commission) are acceptable, but also perhaps with some guidance on the interpretation of the Unfair Terms in Consumer Contracts Regulations 1999.  We get too few cases on this.

The reason given for Foxtons’ decision is that they now have new terms and conditions which have satisfied the OFT.  It seems that these provide for renewal commission, but only for two years and at a lower rate than the initial commission paid. 

I have to say that does not sound unreasonable to me, as it is arguable that landlords are benefiting during those two years from the work done by the agent in finding a good tenant who stays on so the landlord does not have any voids.  It was the open ended element of the previous clause which was so objectionable. 

However, this does leave open the question of what do landlords who have paid commission in the past do now?  The answer I suppose is that “it depends”.  If the commission was charged by Foxtons under the clauses which were criticised by the Judge in the High Court decision, they should be entitled to a refund, and should contact Foxtons to ask for this. 

However, as regards other claims, for example against other agents and differntly worded clauses, it will depend very much on the circumstances of the particular case.  Commission charged in  circumstances similar to those in the Foxtons case examples, may well be recoverable.  However, if the renewal was at a lower rate and the clause was fully explained to the landlord before he signed, probably not. 

It is an unsatisfactory aspect of our legal system, that clarification in the law is so often dependent upon whether a company is prepared or not to finance an appeal in circumstances where  matters are unclear.