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What Foxtons’ ditched case means to you

Foxtons has made the shock decision of withdrawing its appeal against last year's High Court Ruling that deemed its renewal fees unfair.

The High Court ruling was made last July in response to a case brought by the Office of Fair Trading opposing Foxtons' fees. The judge stated that certain terms used by Foxtons were unfair and that the firm had used language in its contracts which was not plain and intelligible and that consumers were unlikely to read standard terms with a great deal of attention and would not expect important obligations to be tucked away in small print.

The judge pointed out that important terms must be flagged prominently not just in contracts but also in any sales literature and all sales processes. However, he did not rule against the principal of renewal commissions as long as they are deemed to be fair and reasonable and are clearly explained in a language consumers can understand.

But in December Foxtons launched a case with the Court of Appeal in relation to the judge's conclusion that its renewal fees had been unfair, only to ditch it this week.  Instead, the London agency has drawn up new terms of business that the OFT and Court have approved and, according to a statement released yesterday, these terms charge a renewal commission at a lower rate than the initial commission, which the firm will not charge for more than two years. 

According to David Smith of PainSmith Solicitors, Foxtons in now in a strong position since the new terms of business are effectively immune to challenge.

But he adds: “What is still uncertain is the position in relation to commission payments already made to Foxtons on the old terms of business. The firm has not said whether it will refund money on complaints by past landlords, or if is already doing so. And no clear view has ever emerged on whether they can be compelled to do so.”

He adds: “It has been suggested by some lawyers that a challenge could be made on the basis of unjust enrichment, but this is complex area of law and normally relates to situations where a person pays another persons debts due to a third party.

“The courts have not considered whether a decision that a particular clause is unfair can be used retrospectively in this way.”

A spokeswoman for Foxtons says: “During the final stages of the renewals legal case last year, we amended our renewal terms and conditions so that they were acceptable to the OFT and the High Court Judge. These new terms have now been formalised in a High Court order and we therefore no longer feel it necessary to appeal the High Court decision. 

"The new terms are more user friendly and provide for renewal commission to be charged at a reduced level and for a maximum of two years, making them very attractive to landlords”.

Smith believes that Foxtons U-turn has little consequence for lettings agents. He says: “In the High Court, Mr Justice Mann made clear that he was not asked to rule and had not ruled that renewal commission was, in itself, unfair.  What was decided was that the wording being used by Foxtons not very clear and so the issue is not that commission is charged, but rather whether it is clearly expressed.  The way that Foxtons were originally expressing these terms was very abstruse and complex.  It is unlikely that other agents who word these provisions clearly will have any major problems.”

Smith dismisses landlord claims that the outcome of the Foxtons case means that they do not have to pay renewal fees or can have them returned. “This is not true.  The right to recover renewal fees already paid is uncertain at best; the ability to avoid paying them will depend on the wording of the terms of business signed by the landlord.”

Top tips

To ensure their terms of business are compliant, Smith advises agents to:

• Ensure that fees and charges are near the front of your terms of business document and are all grouped together.
• Ensure that any commission clauses are clearly expressed.
• Avoid seeking commission on the sale of the property by the landlord to the tenant, a practice that was heavily criticised in the High Court.
• Consider a lower percentage commission on renewals.
• Consider limiting how long you will charge renewal fees after the initial let.

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