Sunday, July 19, 2009

Letting agents - instead of renewal fees

Note - the Landlord Law Blog has now moved to

I was a bit shocked, although I suppose not entirely surprised, to read in the excellent 4wallsandaceiling property tribes forum about what some greedy letting agents are doing to replace the renewal commission they are going to lose as a result of the decision in the OFT v. Foxtons case.

They are contacting tenants and persuading them to leave at the end of the fixed term, so they can earn commission on finding a new tenant for the landlord.

In fact they will be gaining twice from this manouvre, as they will presumably get commission from the landlord of the property the tenants are moving too also, having done little work for it.

The agents on the 4walls forum (who don't do this) ask whether this practice is legal. The answer is no. This is probably a good time to take a look at the law of agency, which most people have either forgotten or think does not exist.

Trotting over to the bookcase to get out my book on agency law, I find this rather good quotation from a Judge in an agency case:

"The position of principal and agent give rise to particular and onerous duties on the part of the agent, and the high standard of conduct required from him springs from the fiduciary relationship between his employer and himself. His position is confidential. It readily lends itself to abuse. A strict and salutary rule is required to meet the special situation."
The fiducuary duty is an important one. I have sourced a nice definition from Gillhams Solicitors LLP which you can read here. Agents would do well to study it.

Under agency law there are a number of principles and rules, which are in essence as follows:
  • The agent must perform his contractual duties, and follow his principals (ie the landlord's) instructions
  • He must do this with 'due care and skill' appropriate to the type of work he is doing
  • He must not delegate his duty (without the principals consent)
  • He must not put himself in a position where his duties to the principal conflict with his own interests
  • He must not take bribes
  • He must not take advantage of his position or his principals property in order to obtain a benefit for himself, and
  • He has a duty to account (ie he must keep his principals money separate from his own, and hand it over, together with all relevant documents and accounts when asked)
I am sure many landlords will smile ruefully on reading this, their experience having been quite different. From what I hear about many agents (not all of them), they seem to have no idea that they are acting in a fiduciary capacity and appear to be acting in their own interests only.

So what can a landlord do if he finds that his agent has acted against his interests, and persuaded his tenant to leave so he (the agent) can earn a new commission finding a replacement? Well I would that thought that, as this is a clear breach of the agent's fiduciary duty, the landlord can go to court and claim both a refund the commission received by the agent for re-letting the his property, and the commission received by the agent respect of the property to which the tenant moved, along with a refund of all expenses incurred by him as a result of the tenant vacating.

It might be an idea, if a clear example of this practice is found, for a test case to be brought (possibly funded by one of the landlords associations??), so these agents are made aware of their responsibilities.

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David Lawrenson said...

Very interesting Tessa.
I remember seeing on a TV hidden camera documentary a few years ago, a certain large firm of letting agents telling the tenant that the landlord would only do a 12 month term (this was so the agent could earn more commission)whereas the landlord in reality only wanted a 6 month term tenancy.
Let's not forget though, most letting agents are not crooks, even in London. And some landlords can be very hard work and overdemanding as I said in a recent blog.
However, that does not justify some London agent's rapaciousness.
Foxtons have really got their just desserts but the key message to landlords must be READ THE CONTRACT. And that message still applies even after this case.
David Lawrenson

Tessa Shepperson said...

Yes, I agree, there are many excellent agents. Indeed the person who raised the point on the 4walls forum is an agent.

Really the sooner they can bring in regulation for letting agents the better, as the greedy and unprincipled agents are putting the rest of the profession in a bad light, which affects all of them, including the good ones, which is unfair.

There is also the problem that it is difficult for ordinary landlords to tell easily which are the greedy agents, although as you say, reading the contracts would be a start!