After the Foxtons case, many landlords wondered how the courts would treat renewal commission clauses in landlords contracts with their letting agents. A recent case reported in the Legal Action Magazine is interesting.
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?