Summary of posts on the Foxtons case

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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I wrote several posts on the Office of Fair Trading v. Foxtons case in July. As I find I am having to refer to these quite a lot in advice to clients, I have decided it would be helpful to have one page with links to them all.

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.

If you want me to advise on your specific circumstances, please see here for details of my advice services. Note however that I only do limited case work nowadays so I am not able to issue proceedings or act on your behalf in any court claim you may wish to bring against your agents.

Advice for landlords seeking to recover commission post OFT v. Foxtons

You are a landlord. You are not a 'professional landlord' (i.e. you do not have a large portfolio and landlording is not your main business). You have paid commission to your agent (who may or may not be Foxtons) in the past, even though they were not managing the property. The commission was charged under a clause which was buried in the small print of your agency agreement and not drawn to your attention before you signed. In the light of the Foxtons case decision, you want to reclaim it. What should you do?

Initially, the answer is "not much", as the recent decision is not necessarily the end of the story. First, the Judge states at the end of his judgement that the practical consequences of his decision are yet to be either agreed between the OFT and Foxtons, or will be the subject of a further hearing. So that needs to be sorted out.

Second, this was a High Court decision, and High Court decisions can be overturned on appeal to the Court of Appeal, (and possibly then again on an appeal to the House of Lords). At the present time, we don't know whether Foxtons will appeal or not.

Whether Foxtons appeal will probably depend on the decision in the other big (even bigger) OFT unfair contract terms litigation, which is the case against the banks on bank charges. There is a House of Lords decision due out at some stage on this (the case was heard at the end of June), so we all need to wait and see what happens.

So overall it is tricky to predict the final outcome in the Foxtons case and how it will affect other clauses providing for commission on renewals in non managed agency contracts. My gut feeling is that Mr Justice Mann got it right in his decision in the Foxtons case, so far as it went, and I think it is unlikely a court will want to substantially alter his judgement (other than perhaps to take it further).

However I am not so sure that the House of Lords (or the Supreme Court as we will shortly have to call it) will feel very happy about coming to a similar sort of decision in the banks case, if this will require banks to pay back millions of pounds in charges to customers, at a time when most of the banks are still a bit fragile after the crash. It is not unknown for HL decisions to be influenced by politics (for example Lord Hoffmans judgement in Birmingham City Council v. Oakley [2001]).

So what should landlords do? Well I agree with others posting on this subject (for example the National Landlords Association and the Residential Landlords Association) which is that they should send a letter now to their agents, requesting them to return the commission paid within 14 days, to establish their claim. However once this is done, my advice is then to wait and see what happens. I will keep posting on this topic, and will try to keep you up to date, as will the landlords associations.

If though, your agent was Foxtons under one of their old agreements criticised by the Judge, or if your agent had a very similar clause which was buried in the small print of your agency agreement, and you don't want to wait, you could consider issuing proceedings now to get a place in the queue of similar cases in the County Court that is no doubt building up. However, no-one can be certain of anything at present, and always bear in mind that if you lose your case, you may have to pay your agents' legal costs.

Hating Foxtons, and another case

I was very amused, while surfing the internet recently, to find that there is a whole web-site dedicated to hating Foxtons - www.wehatefoxtons.com. If you are interested in the landlord business and have a spare few minutes, it is worth a look, if only for the amusing spats between those posting (which include landlords, tenants, and Foxtons employees).

However there is one interesting case, which you can read here, Foxtons Ltd v Willis Estates Ltd, which was heard on 3 June 2009 at the Brentford County Court.

In this case the landlords, no fools, had deleted the renewal commission clause from the Foxtons agency contract before signing. The property was then let to tenants, the tenancy agreement signed, and the tenants paid the initial payments. In the interregnum between this happening and the tenants moving in, someone at Foxtons twigged that the agency agreement had been changed and they were on line to lose their renewal commission. They therefore told the landlords that they had to sign a new agency agreement, and that if they did not they would not release the keys to the tenants and the letting would not go ahead. The landlord signed.

The court case was the agents claim for the commission. The Judge found for the landlords, saying that as the property had been let, there was no consideration for the second agreement (this is a legal term which means that a contract is only enforceable if both sides provide something of value), plus it was void anyway as it was signed under duress.

An interesting case, not only on the renewals commission saga, but also for shedding light on Foxtons business practices. The landlords here recommend that other landlords using Foxtons, get the tenants to pay rent to them, the landlords, direct rather than to Foxtons so they do not have funds out of which to deduct their commission claims.

The OFT v. Foxton case - commission on renewals

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

There is still quite a bit of confusion regarding the recent decision in the case of the Office of Fair Trading (OFT) v. Foxtons (which I reported on here). One of the questions being asked is what exactly is the status now of clauses providing for commission on renewals?

I should make it clear here that we are talking about non management contracts, where the agent just finds the tenant, and the landlord then takes over the management of the property, but where the agent's agency agreement with the landlord provides for him to continue to receive commission whenever the tenancy is renewed. Also the regulations under which the case is brought, The Unfair Terms in Consumer Contracts Regulations 1999, are only enforceable in the context of an contract between a business and a consumer, made under the business's standard contract terms.

In his decision (which you can read in full here) the Judge, Mr Justice Mann, made it clear that he was not saying that clauses providing for commission on renewals were necessarily unfair in themselves. His ruling was just in respect of the specific clauses in the Foxtons agreements, before the court.

Or to use the Judge’s own words “I am not asked to decide, and do not decide, that renewal commissions (in the sense used in these proceedings) are always unfair.”

So can such clauses ever be fair, and if so what do agents need to do to make them fair? Well in my view, at the very least the renewal commission clauses must be given equal prominence with clauses setting out the initial commission charged, and the agents marketing literature must also make it clear that this type of commission will be charged and say how much. In other words, total transparency, so the landlord is fully aware of and understands the nature of the contract he is entering into.

It is also important that the way in which the average landlord/consumer is likely to view the contract is taken into account. To quote the Judge (para 84):

“the argument of Foxtons [is] that the renewal commission is justified because it is part of the payment for an income stream that has been introduced to the landlord .. There is no evidence that landlords generally (let alone consumer landlords) would view the commission in that way, and nothing in the way in which the matter is presented to them in publicity or otherwise which would bring the point home to the landlord. The landlords in question are not sophisticated economists, or even sophisticated businessmen, and would be unlikely independently to think in those sort of terms. They are likely to see themselves as paying 11% for getting a tenant into the property for the agreed first term. I doubt if many of them will think beyond that ...”

And again (para 91)

“I think it unlikely that the typical consumer who has got a tenant for (say) a year's tenancy, and paid 11% of the rent up-front, would expect a repeat bill in year 2 (and all years thereafter) unless that point is spelled out to him in some way. In the absence of that it becomes a trap, or a time bomb.”

The Judge then referred to Foxton’s glossy publicity and the first pages of the agency agreement as being suitable places for these points to have been made.

One of the main criticisms of the Foxtons clauses were that they were buried in the small print of the agreement. To quote the Judge again (para 92):

“I think that such a consumer will expect a lot of detail be dealt with in what is frequently labelled the "small print", but the whole point of that expression ... is that it contains things which are not of everyday concern to the consumer – it contains various clauses which are thought by the supplier to be necessary but which are not usually relied on ... The consumer would not expect important obligations of this nature with likely and significant impact to be tucked away in the "small print" only, with no prior flagging, notice or discussion. ... that is not a fair way to bring the point to the attention of the consumer, and is not adequate.”

However, is there any ground for saying that renewal commission is unfair per se? The Judge commented that Foxtons did very little work for their renewal commission (para 91):

“No particularly burdensome services are part of the package for years 2 and onwards (or at least nothing like the services involved in advertising the property and getting the tenant in in first place) and it would not readily occur to the landlord that the same sum would be payable in the future for years where that distinction remains true.”

If renewal commission is capable of being fair, could it then be argued that charging the same rate of commission for very much less work is unfair in itself? Although the Judge in this decision does not specifically address this point, this does not mean that it will not be considered at a later date, either in this case or another. From a common sense point of view, renewal commission for what appears to be hardly any work does seem to be unfair, although agents will no doubt continue to argue that it is only right that their firm should share in the good fortune of the landlord in having a long term paying tenant with no voids.

However at the moment we have a decision which avoids this point and seems to imply that such clauses will be fair if the are adequately flagged up in advance so the landlord is aware of them. Agents should be wary about relying on this unduly however. My advice would be that if such clauses are used they must be seen to be fair in an obvious way, i.e. to the ordinary person. If you want to charge renewal commission I would suggest charging a commission which is considerably less than the initial commission, to reflect the reduction in the work done by the agent at this stage. This would be less likley to be considered unfair.

I also think that agents should content themselves with looking to receive renewal commission (if it is claimed) only while the property is in the ownership of the landlord. This was not specifically discussed in the decision (as the renewal clause itself was found unfair). However it seems to me to be wholly unfair that a landlord should be expected to pay commission when the property has been sold on to a third party and is no longer under his control (and when he is no longer receiving any rent out of which to pay the commission), and I suspect that a court would also come to this view.

However this not the end of the Foxtons case. If the OFT and Foxtons are unable to agree on how the decision made is to be worked out in practice, the case may come before the court again. And although their initial comments seem to imply that they will not be appealing this decision to the Court of Appeal, this does not mean that Foxtons will not do so. An appeal court could come to a different view from Mr Justice Mann. The safest thing to do is to wait and see.

So my advice overall to agents is to try to make the clauses in their agency agreements as fair and transparent as possible, and not to put in too big an order for printed copies at their stationers. The fat lady has not yet sung!

OFT victory in Foxtons unfair contract terms case

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

Landlords up and down the land will be jumping with glee at the Office of Fair Trading (OFT)’s victory over Foxtons regarding their unfair contract terms. To read the background to this, see my previous posts here and here. The OFT was challenging the clauses under the Unfair Terms in Consumer Contracts Regulations 1999 (The Regulations).

The court hearing took place over three days at the end of April/early May 2009 and the judgement was published today. It has already at the time of writing been reported fairly widely, including of course the OFT press release. These are my comments after reading the report (which you can see online here).

There are basically three types of clause which were looked at:

1. A clause providing for Foxtons to receive commission if the tenancy is renewed or extended
2. A clause providing for Foxtons to continue to receive this commission from the landlord even if he has sold the property, and
3. A clause providing for Foxtons to receive commission if the property is sold to the tenant

Foxtons claimed, in essence, that these clauses were fair as they were their just reward for finding a long term tenant, which provided the landlord with an income stream and no voids.

The first thing which struck me on reading the report was the eye poppingly high price charged by Foxtons for providing a tenancy agreement, of £320. Bearing in mind that you can get a perfectly good agreement in the High Street for under a fiver, and that unlimited access to my agreements are available online for £80 pa (together with all my other annual member benefits), this strikes me as exorbitant!

Returning to the case, the Judge confirmed that although the Regulations only apply to consumers (i.e. not to professional landlords whose main income is from landlording), as this agency agreement is used for both business and consumer landlords, it is subject to them. Examples of consumer landlords are those who are letting their home where they are posted abroad for their job, or who have invested in a couple of properties in lieu of a pension. A substantial proportion of landlords only have one or two properties and therefore will normally come within the ‘consumer’ category.

1. Commission on renewal.
The Judge spent most of his time looking at this point.. He found that Foxton’s clauses were unfair, and made the following comments:

• He made it clear that he was not saying that renewal commission would always be unfair. It would depend on the circumstances of the case and how clearly the renewal commission clause was presented to the consumer.

• The Regulations specify that they do not apply to clauses which are part of the ‘core bargain’ of the parties. However the Judge held that this is not the case here, as the average consumer would not consider the renewal clauses to be part of their core agreement with Foxtons (which was primarily for getting a tenant for a specified fixed term)

• Even if the clauses were ‘core terms’ they would still need to be plain and intelligible and be subject to the fairness test.

• The clauses concerned are not plain and intelligible as the language used would not be clear to the average consumer (even though businessmen and lawyers reading the contract closely would pick up on the points)

• 11% of the rent over an extended period of time is a significant sum and a very significant part of the rent, and the typical consumer would not realise that this was part of the agreement, particularly as it is nowhere mentioned in the sales literature provided by Foxtons about their service

• Compared to the initial work finding the tenant, where quite a lot is done by the agents, very little work is done by them for renewals, other than the provision of a tenancy agreement, which is charged for separately anyway

• Unless it is clearly spelled out at the time the agreement is made so the landlord is fully aware that it will be charged, a renewals clause becomes a trap, or a time bomb (these are the words used by the Judge)

• Although a typical consumer is familiar with the concept of commission, normal commission arrangements (such as with an Estate Agent) do not include commission extending long term into the future, as here

• A consumer would not expect important obligations of this nature with ‘likely and significant impact’ to be tucked away in the "small print" only, with no prior flagging, notice or discussion

• Most normal consumers would be surprised at such a clause, and if they were represented by lawyers, it is something that their lawyer would very likely request be removed (a further indication of unfairness)

• Although the Judge accepted that the lack of a void is good for landlords, he held that the important thing is that the landlord would not, (in this case), normally be aware, from this agreement and the pre contract information provided by Foxtons, that he would be paying ongoing commission on renewals in this way

I think that these are the main points made by the Judge, although anyone particularly interested should go and read the decision for him or herself.

2. Commission when the property is sold.
The Judge merely said here that having found that the renewals commission clause in itself was unfair, it would be even more unfair if the landlord was having to pay it after the property was sold on.

3. Commission on sale to the tenant.
The Judge also found that this would be unfair and therefore in breach of the regulations. The main reason for this was the such a situation was not being considered or contemplated by the consumer landlord at the time he entered the contract, and in most cases he would be astonished by its inclusion. He was instructing Foxtons to find a tenant, not to sell the property.

The Judge also made the point that the clause would impose a potentially large financial liability on the landlord in circumstances where Foxtons had not actually done anything. If such a clause were to be imposed on him, a normal landlord would consider that he had been ambushed. It was clearly unfair.

Although it is arguable that this type of clause would also be allowable if it was properly explained to the landlord, and he understood and accepted it, before signing the agency agreement.

Conclusion
The case report ends by saying that there will be a further hearing to consider how this decision will be implemented in practice, unless the parties (i.e. Foxtons and the OFT) are able to reach an agreement first. Of course there is also the possibility that the case will be referred to the Court of Appeal so this is not necessarily the end of the story. However to summarise

• Unless they are very clearly flagged up to the landlord at the time he signs the agency agreement, and given equal prominence to the fees for the initial letting, clauses providing for commission on renewals will normally be unfair and therefore void under the regulations.
  
• Clauses relating to commission for sales in a contract for agency services for lettings are likewise almost invariably going to be void, unless they are made very clear indeed to landlords at the time they sign the agreement and given prominence in the agreement

This decision is very good news for landlords, although it could be catastrophic for Foxtons and any letting agents who have used similar clauses in their agency agreements in the past. They will now be faced with claims by landlords for recovery of charges paid, and it is going to be difficult to see how they can successfully defend these (assuming the decision is not appealed and overturned).

The OFT also say in their press release "The OFT expects the letting industry to comply with this ruling, and will take the necessary steps to ensure this where appropriate.". You are warned!

Pain Smith on Foxtons

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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I just wanted to draw your attention to an excellent post from the Pain Smith blog here on the Foxtons case. This points out that nothing is decided yet, and nothing may be finally decided for quite some time if the case goes to the Court of Appeal.

Pain Smith also point out that this case will just be about Foxton's terms and conditions. Although it will, clearly, have a huge impact on what other firms can and cannot do in future, there may be circumstances where a clause criticised in the context of the Foxtons case may be allowable in different circumstances.

This is the most unsatisfactory aspects of the Unfair Terms in Consumer Contracts Regulations - until something has gone to court no-one really knows where they are! It is like walking on shifting sands.

Refunds after Foxtons

One aspect of the Foxtons case which I have not seen mentioned is the impact this will have on the status of past payments.

To remind readers, a claim has been brought against Foxtons by the Office of Fair Trading, for a declaration that some of the terms in their landlord agency agreements are unfair under the Unfair Terms in Consumer Contracts Regulations 1999 (see my post here).

The OFT are objecting to clauses which require landlords to pay commission when tenants renew where Foxtons are not managing the property (and even if the landlord has sold the property), and also pay commission if the property is sold to the tenant where Foxtons pay no part in the sale.

We have had a preliminary Court of Appeal decision in the case which says that the ruling (when we get it) will apply to both current and future contracts. The High Court decision is expected shortly.

What I would like to know (and I am sure a lot of landlords would like to know also) is what then is the status of payments already made by landlords under these agreements. If the OFT win the case, then this will mean that these clauses were always unfair and unenforceable. Can landlords claim a refund?? Or offset payments made, against future commission?

OFT preliminary success in Foxtons unfair terms case

As many of you may know, the Office of Fair Trading (OFT) is involved in litigation with Foxtons Ltd (the letting agents) regarding Foxtons’ refusal to agree that certain terms in their agency contracts with landlords are unfair under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR).

One side issue in the litigation was whether any injunction brought against Foxtons could affect current contracts as well as future ones. The Judge at first instance accepted Foxtons’ argument that any injunction in respect of unfair terms could only apply to future contracts.

However today the Court of Appeal overturned this ruling, confirming the OFT's long-held view that it can take enforcement action under the UTCCRs to protect consumers in relation to both existing and future contracts. The Court of Appeal stated that the UTCCRs aim was to protect consumers, and that they were of the view that traders should not have the freedom to pursue existing customers without restriction, in correspondence or by litigation, in order to enforce contractual terms that have been found to be unfair.

So if you are a landlord with an agency contract with Foxtons, they should not now levy any charges under the disputed clauses on you until after the main action has been heard. This is presumably not going to do Foxtons’ cash flow a lot of good.

The main action, i.e. on whether the terms in question are actually unfair or not under the regs will be dealt with by the High Court in the week commencing 27 April.

To read more, click here.

OFT challenges unfair terms in landlords agency agreements

Landlords nationwide will be delighted at the action being taken by the Office of Fair Trading, regarding letting agents Foxton’s agency terms and conditions.

Under these agency agreements, Foxtons claim commission from landlords for tenants found by them when the tenant stays on after the end of the tenancy agreement, even if they (ie Foxtons) are no longer involved in the management of the property, and even if the landlord has sold the property! (In which case the landlord would not be receiving any benefit from the tenant at all.) They also claim commission if the property is sold to the tenant, even though they may have paid no part in the sale negotiations.

Foxtons claim that these terms are fair, but the OFT disagree and have issued a High Court action for an injunction to stop them using them. They are also asking the court to make a declaration that they are unfair, in breach of the Unfair Terms in Consumer Contracts Regulations 1999.

If the OFT are successful, they will be bringing action against any other letting agents which have similar terms in their agency agreements (and there are many!).

This is a much needed action. Landlords have been complaining for years about these clauses which in many cases are ‘money for nothing’.

You can read about the items on the OFT web-site here.

Legal Professional Training Ltd

A new year, a new business venture. This year it is a new training company called Legal Professional Training Ltd, "LPT" for short.

LPT has been some time in the making. I and several others were to do some lecturing last year for a training company which then went under. We were a bit upset about losing the potential earnings, and some of us decided to go it on our own. Eventually LPT was formed. Basically it consists of me, Martin Iller, Deputy District Judge, author and solicitor, Diana Iller (yes, former wife but a long time ago – they are still speaking) solicitor, and Director of Postgraduate Studies at Thames Valley University, and my husband Graeme, employment specialist and a former trade union man. Martin and I are going to do the housing courses and Diana and Graeme do the employment/discrimination stuff. I think we will all make a good team.

If we can battle our way through the paperwork that is. We incorporated on 4 December 2006. Jordans did that – they were very efficient and helpful, no problems there. The problems are mainly with getting the bank account opened. We all live in different places (well, not Graeme and I, but the others do) so it is a nightmare getting the papers signed plus the bank then went and lost them, so most of it has to be done again. And until we have a bank account we cannot really register for VAT or do anything else much. So as I have some courses I want to start advertising, they are being run technically as Landlord-Law courses ‘in association’ with LPT for the time being. Hopefully we will not have to do this for too long.

So what sort of courses will we do and how will they be run? Well for the online training we are using an open source course management software called ‘Moodle’. I had never heard of it before Martin mentioned it but it is really good. Apparently Open University use it and lots of schools and colleges. We now have a moodle training site and I have done a fair bit of training on how to create the courses.

We also want to do some traditional face to face training, and will be looking to develop courses and such over the year. We will also do in house stuff if people want it.

So there you are. I spent much of the Christmas period creating two moodle courses (in between cooking turkey and watching Dr Who DVDs with my offspring) one of which is ready to roll and the other is scheduled to run for four weeks from the end of March.

The main course in March is on tenancy agreements – so many people fail to understand the Unfair Terms in Consumer Contracts Regulations 1999 or even realise that they exist. I saw a tenancy agreement provided by some landlord software only the other day which was way out of date and wide open to successful defences by tenants against possession claims (e.g. for rent) during the fixed term. More courses are to follow, on contracts of employment and discrimination law, just as soon as the employment team can find time to create them.

To find out more, why not visit our web-site at www.professionallegaltraining.com?

One rule for treasury draftsmen ...

In these days of plain English and legislation against unfair and unclear terms in consumer contracts, one can’t help wishing that there was something similar which applied to statutory instruments.

I have been trying to make sense of The Disability Discrimination (Premises) Regulations 2006 but I have to say that so far I have found them almost wholly impenetrable. Of course this may be because their general literary style is so deeply boring it is difficult to work up much interest in mentally cross referencing the necessary three or four sections so you can work out what the section you are looking at is talking about.

If this sort of thing was printed in a consumer contract it would be slated by the OFT as unfair and be unenforceable. But although this is not a contract, it is relevant to consumers, as presumably not only lawyers will need to know about disability discrimination in premises. But it is drafted in such a way that most ordinary people will never be able to understand it. Even the explanatory note at the bottom is not wholly clear. Would that treasury draftsmen were subject to the same drafting rules as the rest of us!

OFT squashes agents unfair contract term

For those who are interested in such things, the OFT (Office of Fair Trading, but OFT is easier to type) has published is quarterly report on cases on unfair terms (as per the Unfair Terms in Consumer Contracts Regulations 1999) for October to December 2005. One featured contract term, rightly squashed by the OFT, caught my eye, I quote:

“This term provided that, in the event of a sale of the property arising directly or indirectly out of the letting to the tenant, the landlord was liable to pay a commission to the agent. This was unfair for the following reasons. The future sale of the property was unlikely to be in the contemplation of the landlord at the time he entered into the agreement. If the landlord subsequently decided to sell the property to the tenant, he would have already paid for the services with which he had been provided. It was unfair to seek a bonus for a possible future event in circumstances where the agent had provided no correlative service.”

The creative use of contract terms to swell the coffers is a well known ploy, but landlords will be pleased to know that the OFT have put the kibosh on this one at least.

The ‘how changed’ section of the report goes on to say

“Now the agent merely offers an obligation free valuation of the property. The new term also states that sale of the property would be subject to terms and conditions of a new agreement.”

So now you can sell your property to your tenants, and not pay a penny to your agents. Well, probably.