The OFT challenged the fairness of certain terms in Foxtons' letting agent contracts with consumers. The case was brought under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs).
The UTCCRs provide that
i. All terms which have not been individually negotiated in contracts with consumers must be in plain and intelligible language.
ii. If terms define the main subject matter of the contract or the adequacy of the price and remuneration - the 'core' of the bargain - then as long as they are in plain and intelligible language, there cannot be any assessment of the adequacy of the price in comparison to the product provided in exchange. But these 'core' terms can be assessed for fairness on any other grounds (such as whether they are sufficiently drawn to the attention of consumers).
iii. All other (non-core) terms which have not been individually negotiated are unfair under the UTCCRs if, contrary to the requirement of good faith, they cause a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.
The OFT challenged three kinds of terms as follows:
i. Renewal commission terms. Terms which provided that commission shall be paid to Foxtons on renewals, continuations and extensions of a tenancy - even where the person renewing the lease is not the tenant that Foxtons originally introduced.
ii. Third party renewal commission terms. These terms covered the situation where the landlord sold the property with the tenant still in it. If the new landlord wished to let the tenant stay in the property at the end of the initial lease, the old landlord would still have to pay Foxtons' commission - for as long as the tenant remained in occupation.
iii. Sales commission terms. Terms which provided that commission shall be paid to Foxtons in the event of a sale of the property by a landlord to the tenant.
The UTCCRs only apply to contracts between a consumer and a business. The Judgment in Foxtons will only be relevant where the landlord is a consumer. Different laws apply if the landlord is a business (for example, a company or a professional or commercial landlord).
Firstly, the landlord must be an individual and not a company. Secondly, in letting the property the landlord must be acting 'for purposes outside his trade, business or profession.' Consumer landlords include individuals
i. who let out their property whilst travelling abroad
ii. who let out part of their property in order to fund their mortgage
iii. whose property investment represents part of their pension plan or other long term saving.
The Judge ruled that all of Foxtons' terms which the OFT challenged were unfair and ordered that Foxtons refrain from using or relying on such terms (or terms of like effect).
In summary, the ruling and Order prohibit the use of sales commission and third party renewal commission in Foxtons' letting contracts and require that where renewal commission is to be charged, it must be transparent and clearly brought to the attention of the consumer. The liability to pay the commission, the circumstances in which it is payable and the amount or rate of commission must be clear and actively flagged up to the consumer. The terms must be in plain and intelligible language, so that the consumer can understand the nature and extent of his liabilities.
He said that landlords who had contracted with Foxtons would consider the focus of the contract to be on getting the tenant into the property, not on renewal and certainly not on the sale of the property. The contract, the publicity and the sales practices focus on the initial introduction of the tenant to the property. He said that landlords would be surprised to be told that they would have to pay the same rate of commission every year that the tenant remained in occupation, when Foxtons do no more work, or the renewal is negotiated by another agent or the landlord himself.
He said that renewal commission represented a significant proportion of the rental income (11 per cent), and this operated adversely against the landlord the more time goes on -in the sense that rents are likely to increase, so the amount the landlord has to pay will increase. Further, he said that Foxtons provide no or no commensurate services in return. Therefore there is a significant imbalance in the contract, to the detriment of the consumer.
He said that the consumer would be surprised by the obligation to pay renewal commission, the obligation was not flagged up or even mentioned in the glossy brochures -it just appeared in the small print of the contract. It was therefore a trap or time bomb.
He ruled the third party renewal commission to be unfair for more or less the same reasons.
He ruled the sales commission to be unfair because it is a large liability, where Foxtons do no work whatsoever. The landlord does not have selling the property in his mind when he instructs Foxtons to get him a tenant. Being asked to pay sales commission would come as a surprise. The term was not flagged at all.
No. The Judge did not say that agents cannot charge renewal commission at all, but that if they wish to do so, they must make the liability to pay this absolutely clear. He did rule that consumers are likely to find the obligation to pay renewal commission surprising, and therefore it is especially important that this obligation be actively flagged.
He declared the terms we had challenged to be unfair.
He ordered that Foxtons cannot rely on or enforce the terms we challenged in contracts entered into before the date of the Order.
He ordered that Foxtons cannot use or insert into their contracts any of the terms we challenged, or terms having like effect, after the date of the Order.
However he made clear that where Foxtons is providing an ongoing management service, they are allowed to charge renewal commission.
A term that has an effect which is the same as one of the terms we challenged. Foxtons have set out new terms which are attached to the Order. The OFT has agreed that these terms are not 'of like effect' to the terms we challenged, but this does not mean they are fair. We will keep the operation of Foxtons' new terms under review in Order to assess their fairness.
Yes. This matter was decided by the Court of Appeal in April 2009. The Court of Appeal ruled that where a court finds that a term is unfair generally, the trader is not allowed to enforce that term against any consumers, unless there are some specific circumstances in which the term may operate fairly -if so, the trader should identify these, and they can be carved out of the Order. The Court of Appeal stressed that the UTCCRs are meant to provide practical protection for consumers, and held that enforcement of a term includes writing threatening letters, asserting the obligation set out in the unfair term.
The Order (pdf 2.5Mb) prevents Foxtons from using or relying on sales commission terms, third party renewal commission terms and renewal commission terms (or terms which have like effect) in their contracts with consumers. If Foxtons seek to use or rely on these terms (or similar terms) they will be in breach of the Order and the OFT can apply to the Court seeking an order that Foxtons are in contempt of court.
If, however, Foxtons believe that the Order should not apply to a certain category of consumers there is a mechanism in the Order which allows Foxtons to obtain the consent or agreement of the OFT or the court so that for example, Foxtons can argue that a renewal commission term in an agreement is not unfair.
If you are a landlord with a lettings agreement with Foxtons which predates the Order (23 December 2009), and it contains a sales commission or third party renewal commission term, Foxtons will not be permitted to enforce this term against you. If your lettings agreement with Foxtons contains a renewal commission term, and you are not using Foxtons to provide the Comprehensive Management Service, then Foxtons will be unable to rely on or enforce that term (or a term which has like effect) against you, unless they can first get permission from the OFT or the Court.
Yes. For as long as Foxtons remains instructed to provide you with their Comprehensive Management Service, you will have to pay Foxtons renewal commission. However if you later cease to take this service, Foxtons will not be able to charge you renewal commission under their old terms.
This Order does not require Foxtons to repay money that consumers have already paid them. If you are thinking about asking Foxtons to repay you money paid as commission, you should seek independent legal advice.
[anchor I have a different letting agent (not Foxtons). What is the relevance of the Foxtons' case for me?]
Foxtons have to obey the Order made by the judge in this case, but it does not directly apply to any other agents. However, the Judgment itself sets out what the law is and contains key principles that should be applied to other letting agents' contracts with consumers (and indeed contracts with consumers generally). Therefore in our view other letting agents should not be using sales commission and third party renewal commission terms in letting contracts with consumers. Renewal commission terms should be transparent, clearly set out and given appropriate prominence both in the contract and any accompanying promotional literature and sales practices used by the agent. If an agent's entitlement to renewal commission is not set out clearly, in terminology you can understand, and indeed actively flagged in the contract, the glossy brochures and the sales practices, then in our view the agent ought not to be able to rely on the term.
If the term the agent is relying on is unfair, it is not binding on you. Whether it is unfair depends on the extent to which it was actively flagged to you by the agent before and at the time you signed the contract, and also on the extent to which the term was written in terminology you could easily understand. If you are thinking about refusing to pay renewal commission or are defending an action against you for unpaid renewal commission, we recommend that you seek independent legal advice.
See above response. Again this will depend on whether the term is unfair. If you are considering taking legal action to seek the refund of renewal commission you have paid we recommend that you seek independent legal advice.
Foxtons are not appealing the ruling. Therefore the Order against them stands, and the Judgment in our view represents good law.
We expect other letting agents to comply with the law as set out in the Judgment. Where agents use terms very like to those ruled unfair in this Judgment, we will consider enforcement action against them.
The OFT will continue to monitor the terms Foxtons is using in its letting agents contracts with consumers, in order to assess whether the obligation to pay renewal commission has been sufficiently flagged to consumers.
The OFT has recently launched a market study looking at Consumer Understanding of Contracts to look into the extent to which consumers understand complex products and prices.
As we have stated in question 17 above, the OFT is of the view that the Judgement in the Foxtons' case sets out the law and contains key principles which apply to other letting agents' contracts with consumers. In the OFT's view, therefore, other letting agents should not be using sales commission and third party renewal commission terms in letting contracts with consumers. Renewal commission terms, where used, should be transparent, clearly set out and given appropriate prominence both in the contract and any accompanying promotional literature and sales practices used by the agent. We have written to these bodies, given their status and position in the letting agents industry, and set out the OFT's view in light of the Foxtons' case. We have asked them to cascade the information in our letter to their members and to inform their members that we will be monitoring the market and will consider taking action against letting agents who continue to use unfair terms in their letting contracts with consumers.
Back to: Foxtons (closed 22 February 2010)
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