Foxtons: hidden fees in lettings agreements with consumer landlords

Office of Fair Trading (OFT) closed consumer enforcement case.

From:
Competition and Markets Authority
Published
1 February 2010
Case type:
Consumer enforcement
Case state:
Closed
Market sector:
Distribution and service industries
Outcome:
Consumer enforcement - court order
Opened:
1 February 2008
Closed:
1 February 2010

High Court proceedings

On 25 February 2008, the Office of Fair Trading (OFT) issued High Court proceedings against Foxtons Limited under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs). The OFT sought a declaration on the application of the UTCCRs to certain terms in Foxtons lettings agreements with consumer landlords. The OFT also sought an injunction against Foxtons preventing it from using the terms in future contracts.

OFT challenged the following Terms

  • Renewal Commission Terms: Which allow the agent to recover a further commission from the landlord where the tenant, and in some cases an occupant or other party introduced by the tenant, continues to rent the property from the landlord beyond the original term of the tenancy, and where the agent is not asked to provide any additional service in exchange.

  • Sales Commission Terms: Which allow the letting/managing agent to recover a commission where the property is sold by the landlord to the tenant and in some cases an occupant and/or any other party introduced by the agent, notwithstanding that the landlord does not wish the agent to perform any service in connection with the sale.

  • Third Party Renewal Commission Term: Which allow the agent to recover a commission from the landlord, where he has sold his interest in the property to a third party (and so has no control over and derives no rent from it), in the event that the tenant, or in some cases the occupant or other party introduced by the tenant, continues to rent the property (from the purchaser) beyond the original term of the tenancy and the purchaser does not agree to pay the commission.

The OFT and Foxtons engaged fully in a consultative process, in which Foxtons were given a reasonable opportunity to amend their terms. However, Foxtons contended that their agreements with landlords were not unfair, and failed to make the amendments we required and continued to use them.

Court of Appeal judgment

In April 2009 the Court of Appeal reversed a judgment handed down on 17 July 2008 by Morgan J in the High Court which struck out the scope of the relief that a court can grant in proceedings brought by OFT against Foxtons under the UTCCRs. The Court of Appeal ruled that the OFT is able to stop traders from relying on unfair terms in existing contracts with consumers. Foxtons had argued that only the individual consumer could bring such a challenge.

High Court ruling

A hearing to determine the substantive issues relating to the fairness of Foxtons lettings agreements with landlords was held in the High Court on the 29 April - 1 May 2009. The test of fairness related to Foxtons a) Renewal Commission terms, b) Commission on Sale of the Property, and c) Third Party Renewal Commission.

The OFT welcomed a landmark High Court ruling that certain terms and conditions used by Foxtons Ltd in its lettings agreements with landlords are unfair.

High Court Order

A hearing was held on 17 December 2009 at which OFT secured a High Court Order against Foxtons Ltd. This declared formally that certain terms in Foxtons' contracts are unfair, and granted an injunction restraining Foxtons from relying on these terms (or terms of like effect), or inserting these terms into future contracts.

The ruling and order prohibit the use of sales commission and third party renewal commission in Foxton's letting contract, and require that where renewal commission is to be charged, it must be clearly brought to the consumer's attention - both in terms of the liability to pay it, the circumstances in which it will be payable, and the amount or rate at which it will be charged.

OFT expects other agents within this market, which use similar terms in their contracts with landlords to comply with this ruling and will take the necessary steps to ensure that this happens.

Published 1 February 2010

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