So, Foxtons are in the news again, as they are about to be sued in another groundbreaking case.
Last time it was the OFT claim re the Unfair Terms in Consumer Contracts Regulations in 2010.
This time it is solicitors Leigh Day and a class action on behalf of many landlords on the basis of unfair charges.
Good for them! I think a case of this nature is long overdue.
I have been writing on this blog for years about agency law and the duties of agents to deal fairly with their landlords, hoping that someone would take up the cause. At last this is happening.
Agents and their fiduciary duty.
I think the first post on the subject that I did, was this one in 2009 (nearly six years ago) which was about how some landlords were encouraging tenants to move out so they could get their commission for finding a new one.
In this post I talked about what is meant by ‘fiduciary duty’ – the extra special duty of care agents have towards their customers (known in agency law parlance as ‘principals’).
To put it in a nutshell, the law states that because agents are in a particularly powerful position, effectively managing their client’s business for them, with the ability to make contracts on their behalf (meaning that they are able to feather their nest without their landlords knowing about it), they have a legal obligation to be extra specially careful to act in ‘good faith’.
The law will (or should) treat an agent who has breached this duty, much more harshly than it will other breaches of contract, as the agent is in a position of trust. Courts and Judges normally take this duty very seriously.
A position of trust, betrayed
Because letting agents ARE in a position of trust. Landlords assume that they are acting in their best interests.
The shock and distress suffered by a landlord after discovering what had been done to him, can be seen from the reaction of Dr Chris Townley, the landlord at the centre of the new Foxtons case:
“I was incredulous when I found out that Foxtons took commissions from anyone working on my property without my consent. I felt betrayed.”
I think most landlords in his position will feel the same.
I would suggest that this type of reaction is, in itself, proof that this sort of thing is unfair.
A bit about the fees
Then there is the double charging – apparently Foxtons not only charge an eye watering £420 for ‘drawing up a tenancy agreement’, but they charge this to the tenants as well! A total of £840!
That’s a PHENOMENAL amount of money, for what is effectively just a clerk filling in the blanks of a pre-drafted document. On a time costing basis (as I assume it does not take more than a few minutes) it is probably more, pro rata, than some QC’s charge.
Indeed, £840 is the sort of sum I used to charge as a solicitor for checking and amending tenancy agreements – an exercise that would take me the best part of half a day to a days work.
So far as commission is concerned, it looks as if the commission Foxtons takes from traders (who then add this to their bills to be paid by the landlord) can be up to 33% of the invoice – making repair bills for customers of Foxtons and other agents who make these charges, significantly higher than repairs bills from normal tradesmen.
Because this is not just Foxtons. We are told on Property Industry Eye that apparently this sort of charging is so prevalent that it has become the norm! (The phrase ‘Augean Stables’ comes to mind …)
Foxtons justify these charges by saying that in their terms and conditions they have a clause saying that they take commission.
Is this sufficient, in view of the size of the commission and the inflation of the repair bills to the customer? I think not. This money is effectively a ‘secret profit’ which the landlord knows nothing about. Which is a serious breach of agency law.
My view is that an agent, being in a position of trust, must make it crystal clear to their customers exactly what they are changing and how it is calculated and that a line in the small print of their terms and conditions is not sufficient to discharge their ‘fiduciary duty’.
There are also of course the new regulations on transparency of fees which came into force in April.
But these are based on the rules that have always been there – that an agent must deal honestly with his principal and only charge what has been specifically authorised in advance by the customer.
Double charge, double penalty
It is possible that if the Judge finds against Foxtons (and we must bear in mind that Foxtons could win, litigation being a chancy business, but if they don’t) they could be facing an even larger bill than anticipated.
In some circumstances, principals in an agent/principal relationship can recover not only the secret profit but also any subsequent profit made by the agent using the secret profit money. As it is really the principals (in this case the landlord’s), money that was being used. This is known as ‘tracing’.
A very cursory search on Google brought up the case of FHR v. Cedar which you can read about on Wikipedia here. In this case, the issue of a secret profit was an important part of the claim. The court found in the principal’s favour.
Foxtons could find themselves having to disclose all sorts of details about their finances to the court and face a swinging financial order. I hear that their share price is already dropping …
Honour to have its reward?
Another reason why I am delighted that this case is being brought is that, if the Judge finds against these practices, it will be a vindication of all those agents who don’t do them.
There are many excellent and honourable letting agents, who would scorn to take up to 33% commission from traders without specific authority from their landlords, or to charge both landlords and tenants the best part of £500 each for something which is effectively just a clerical exercise.
What about THEM?
How do they feel when they see companies who charge these extortionate fees prospering and ‘getting away with it’? Should they not be praised for standing up for what is right and just and only charging what they think is fair?
I wish Leigh Day all the best with their litigation, and commend them for standing up for justice in bringing this claim.