Here is a question to the blog clinic from Mary (not her real name) who is a landlord
My tenant and I have agreed on continuing a tenancy on a periodic basis. Letitng agents originally found the tenant and did a 2-year contract. They have received over £4000 in commission for that.
They are now saying if I continue the tenancy, even on a periodic basis, I need to pay them 2 years’ commission upfront. (Another £4000 for literally doing no admin or anything). Please, can you advise?
I did not realise this at all as their contract does not mention periodic contracts but uses another term. I feel this is to confuse the landlord and they pushed me into a 2-year contract originally – I now see why as THEY benefit! Any advice would be really appreciated.
One of the reasons why agents are often very keen for landlords to sign a long fixed term with their tenants is so they can take a large amount of commission from the initial rent payments.
Whether they are entitled to any further commission after the fixed term has ended where they are not doing any work for it is debatable.
The 2010 Foxtons litigation
There was a case against Foxtons in about 2010 on continuing commission which you can read about here.
This was on the basis that a clause providing for future commission was (as drafted in that agreement) unfair under the Unfair Terms in Consumer Contracts Regulations (now part of the Consumer Rights Sct 2015).
Sadly that case never went to the Court of Appeal as Foxtons decided not to proceed on the basis of an informal agreement with the Office of Fair Trading (now no longer in existence) which you can read about here.
That agreement was on the basis of a renewal commission for two years only and at a lower rate than the initial commission paid. It is often assumed therefore that this is a ‘fair’ way of dealing with renewal commission where no work is being done.
The unfairness argument
It is arguable though that the whole concept of renewal commission for letting agents when they do no work is essentially unfair as it is one-sided.
The agent is claiming that they are entitled to the renewal commission because they have found a good tenant who renews multiple times and that they are entitled to be rewarded for that.
However, there is no corresponding penalty if the tenant they find is a bad tenant and the landlord loses money over it. So the agent is rewarded for the good tenants but not penalised for the bad tenants.
This is a clip of a workshop by David Smith some years ago where he explains this in more detail (apologies for the poor sound).
Dealing with a claim
If you refuse to pay and the agents sue you, these basic principles could form part of your defence.
However, a large part of the case would also be about the actual clause in your agency agreement, what it says, how prominent it was on the agreement document, whether it was explained to you etc, which I can’t comment on as I don’t have any information on those aspects.
So you would need to take legal advice.
Although it is always possible that if you just refuse to pay and challenge the agents to sue, they may decide not to do this as they will not want to risk an adverse precedent.