Extension Fees Test Case - OFT v Foxtons - UPDATE |
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28th April 2009
There have been a lot of enquiries from Landlords regarding the case against Foxtons brought by the Office of Fair Trading relating to potentially unfair terms in their agreements with Landlords. The ruling will have far reaching implications to many agents. Few are willing to comment on a case that hasn't been heard, but its important for Landlords to understand what the issue actually is.
The case appears to have been misreported and hijacked into the mistaken belief that extension fees are themselves potentially unlawful. This is not the case. The issue before the Courts is very specific.
The Foxtons' terms on which the OFT has sought an injunction can potentially require landlords to pay Foxtons substantial sums in commission, where a tenant continues to occupy the landlord's property after the initial fixed period of the tenancy has expired when Foxtons plays no part in persuading the tenant to stay, and no longer collects the rent or manages the property. The OFT has also objected to Foxtons' terms that require a landlord to pay these sums after they have sold the property. Foxtons contends that such terms with landlords are not unfair. [source: www.oft.gov.uk ]
Where an agent has been the effective cause of the extension or replacement tenancy, and where new contracts have been drafted and notices served, it is entirely fair and reasonable to raise a fee. This case is directed at agents who stumble across the fact that a tenant they introduced remains at a property and simply raise an invoice upon such a discovery, sometimes many months after the extension was agreed.
Foxtons contended that any ruling against them should only apply to new agreements and not be applied retrospectively. Initially the Courts accepted this, but the ruling was overturned on appeal. The fairness of the terms in any Foxtons' contract themselves have not yet been considered and this will form the substantive case listed in the High Court during the week commencing 27 April.
Bushells operates one of the fairest policies in London, a fact reported in the Daily Mail. We charge no more than 5% plus VAT for the rent reserved in the second year and make no further charges in any subsequent years, even where Bushells was instrumental in the extension. Our staff still provide an ongoing service in the event any issues arise and make no further charge for doing so.
Our opinion is that the OFT will win their case on the specific issues raised, but that it will not affect reasonable charges where the Landlord benefits from the extension to an initial tenancy where an agent has been the effective cause of the same. It is worth adding that where a tenant gives notice and moves out before the end of the initial fixed term, the Landlord receives a pro rata refund of fees.
