OFT v Foxtons - The facts regarding Extension Fees |
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7th April 2009
The Office of Fair Trading has persuaded the Court of Appeal to overturn a decision and will now go ahead with proceedings against what it deems are unfair clauses in Foxtons contracts.
The OFT commenced High Court proceedings against Foxtons in February 2008 seeking an injunction under the Unfair Terms in Consumer Contract Regulation (UTCCR) which would prevent the estate agency using certain terms, considered by the OFT to be unfair, in its lettings agreements with landlords.
The OFT says Foxtons terms can potentially compel landlords to pay Foxtons additional sums in commission, where a tenant continues to occupy the landlord's property after the initial fixed term of the tenancy has expired even where Foxtons play no part in negotiating the renewal. The commission required is in many cases the same rate as the original commission despite no additional work having been undertaken.
The OFT has also objected to Foxtons' terms that require a landlord to pay these sums after they have sold the property where the new buyer refuses to accept liability for extension fees. Foxtons contends that such terms with landlords are not unfair and are agreed in writing before entering into any tenancy agreement.
During the preliminary stages of these proceedings Foxtons argued that any injunction on unfair terms could only apply to future contracts, rather than preventing the use or enforcement of unfair terms in existing ones. The Judge ruled in favour of this.
However, the Court of Appeal overturned this ruling. The court stated that "the UTCCRs aim to protect consumers, and was 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". The OFT says that under the Unfair Terms in Consumer Contract Regulations, a consumer is not bound by a standard term in a contract if that term is unfair, and that only a court can decide whether a term is unfair. The case will go before the High Court on April 27.
This case does not mean that extension fees are unlawful, rather that they must be fair and justified. It is a specific issue regarding agents who discover tenants are still in a property at the end of the initial fixed term and who claim fees despite not having been the effective cause of the renewal of a new term. Further, it takes issue with agents who claim fees even where a property has been sold where the new buyer refuses to accept any liability.
Bushells operates one of the fairest agreements in London as mentioned in the Daily Mail. Where Bushells negotiates an extension for a 'Let Only instruction' (ie.Not Managed and no rent collection), a Landlord is charged no more than 5% in the second year and no further fees in any subsequent years. Bushells will still assist in negotiating rents, serving notices and providing replacement agreements as required without charge.
Managing Director, Eric Walker, commented "We agree with the principle that the OFT are pursuing and have been operating what we believe is a fair structure for a number of years irrespective of this case. I am certain a lot of agents will be seriously affected by what will inevitably be a dramatic cut in income where they rely on extension fees. We took the view that after the second year, it was unreasonable to continue to charge a Landlord for what is often no more than a couple of phone calls and a redrafted agreement. We believe that this transparency is appreciated by our Landlords and feel that our policy has been endorsed by the OFT and indeed the Courts."
Richard Long, Lettings Director agrees. "We find that most Landlords are quite surprised at the fees they will be liable for should a tenant remain for several years. Even though agents detail this in their Terms of Business it does seem an unfair term if the agent concerned hasn't provided a service to justify a fee. I don't think Landlords realise that the agreement potentially renders them liable for additional fees at the same rate regardless of whether they have been involved in the process or not. Some Landlords simply receive an invoice!"
