Painsmith Landlord and Tenant Blog

A practitioners landlord and tenant law blog from PainSmith Solicitors

Energy Performance Consultations and Next Steps

The DCLG has published summaries of responses to a series of consultations on Energy Performance Certificates and has indicated how it will be taking the matter forward.

The main proposals of interest to the PRS being consulted on were:

  1. Wider publication of EPC data
  2. Requiring EPCs where individual rooms in HMOs were rented
  3. Requiring EPCs for holiday lets
  4. Publication of EPC figures in all property advertising

The first proposal was to create new powers for EPC data including address data and EPC recommendations to be published. The government intends to take this forward and will implement new legislation to allow for this. The legislation will deal with any data protection issues that may arise. Naturally this means that prospective tenants and third parties will have unfettered access to EPC reports and will be able to tie them to properties.

Currently where an HMO is rented out as a single property an EPC is required but where HMO property is rented out on a room by room basis then an EPC is not required. The government is not planning to fix this discrepancy as it is not required to by the relevant EU directive.

The EU directive which required EPCs actually demands that holiday lets for more than 4 months include an EPC. The legislation implementing it here did not cover the point but Government guidance said that all holiday lets were excluded. The Government will fix this by amending the guidance to make clear that EPCs are required for holiday lettings in excess of 4 months. Arguably they should actually fix the regulations to make this issue clearer and to define what is meant by a holiday letting.

The latest version of the underlying EU directive requires that all property advertising carry the EPC rating by July 2013. Currently this information is only required where written information is made available to a prospective buyer or tenant. Arguably, of course, advertising is written information and so an EPC should be provided with adverts already. However, one supposes that the reference is more to the sort of small adverts found in newspapers and magazines which typically supply very limited information. At the moment the Government does not intend to implement this proposal for the simple reason that they do not have to until 2013. However, agents should be aware that this is on its way and they will need to adjust procedures accordingly.

The overall message seems to be that the Government will only do what it absolutely has to do to service its EU requirements.

Filed under: England & Wales, FLW Article, Northern Ireland, Scotland, ,

Drying Flooded Buildings

The DCLG has published an interesting summary of guidance on dealing with flooded properties which may well prove valuable in the face of global warming and the uncertain climate!

This is not formal advice in itself so much as a signpost to the various pieces of advice out there and the areas which still need work. However there are some useful flowcharts and an overview of different methods of drying and moisture testing. It is not a publication for the faint-hearted though and assumes a fair degree of technical knowledge.

Filed under: England & Wales, FLW Article, Northern Ireland, Scotland, ,

Possession Proceedings and Human Rights

The Supreme Court has recently handed down its decision in Manchester City Council v Pinnock.

This case concerns whether it is appropriate for a Court to consider Article 8 of the European Convention on Human Rights when making a possession order.

Article 8 guarantees respect for private and family life (including respect for the home) and prevents interference with this by the state except in accordance with the law and only as “necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others.”

While Article 8 cannot apply to private landlords as they are not organs of the state the Courts most certainly are and they are therefore bound by it. Accordingly the decision in Pinnock may be relevant to the private sector even though the Supreme Court took care to state that nothing in their decision “is intended to bear on cases where the person seeking the order for possession is a private landowner”.

So the decision of the Supreme Court is that Article 8 should be taken into account by Courts when dealing with possession actions by local authorities although they stress that it is only in the most exceptional cases where Article 8 would actually have the effect of preventing possession where the domestic law allowed for it. They have not ruled in relation to private landlords and are conscious of the impact of Article 1 of the First Protocol (which prevents deprivation of a person’s possessions except in accordance with law designed to protect the general interest) but this does not mean that they would not rule that Article 8 applied to private landlords if the matter came before them.

This is a worrying development for private landlords. It is undoubtedly the case that consideration will be given by some tenants to advancing an article 8 defence. More particularly it opens up questions about the use of the Accelerated Possession process for section 21 notices and their equivalents in Scotland and Northern Ireland and particularly about the use of section 21 notices in a ‘retaliatory’ manner where the tenant has complained about disrepair etc.

The battleground for 2011 may just have been set out.

Filed under: England & Wales, FLW Article, Northern Ireland, Scotland, ,

Housing Amendments in Northern Ireland

We have not looked at Northern Ireland for some time now, since the introduction of the Housing (Amendment) Act (Northern Ireland) 2010 in fact.

Therefore we felt we should take a look at the (slightly unimaginatively named) Housing (Amendment) (No.2) Bill which is currently in committee stage in the Assembly until the end of January 2011. Back at the start of the year we mentioned that a consultation on a draft version of this bill was underway. This new bill is part of the product of that process.

The new amendment bill seeks to amend the Private Tenancies (Northern Ireland) Order 2006 which controls the majority of private residential tenancies entered into in NI.

There are three key changes:

  1. The need to provide a statement of tenancy terms will be abolished and this information will need to be placed into the rent book.
  2. There will be am introduction of a tenancy deposit protection scheme along the lines of that operated in England and Wales.
  3. There will be a new ‘light touch’ registration scheme for landlords.

There are a number of other provisions such as the creation of a power to demand evidence of family relationships to assist with regulation of HMOs and also extending the ability to regulate rent in relation to properties subject to rent control.

Interestingly the draft bill does not allow for tenants to enforce the non-registration of a tenancy deposit by seeking a civil penalty as is the case in England & Wales but rather makes a failure to properly register a deposit a criminal offence with a fine limited to a maximum of £2,500. There is an ability for landlords who have failed to register a deposit to avoid full court action by simply paying a fixed penalty fine equivalent to three times the deposit. This seems a little steep given that the maximum fine on attending Court is only £2,500. Additionally, the Assembly has not followed the proposed system in Scotland carefully enough and has also failed to learn lessons from the English experience. Therefore it has focused on protecting the deposit within 14 days of receipt. The issue of receipt has caused immense problems in England & Wales and is a glaring loophole in the system. There is still an opportunity for the Assembly to rethink this issue and it should be taken.

All posts on Northern Ireland specific topics can be found here.

Filed under: FLW Article, Northern Ireland

Quango Cuts

The final list of the public bodies to be culled in the widely trailed cuts in quango’s put forward by the Coalition Government has been announced today. The full (28 page) list is available here.

Notable losses include the Office of Fair Trading on which a consultation is to be launched in the New Year and the Tenant Services Authority. Both of these are to be merged into other bodies and some of their powers are to be abolished altogether.

The Valuation Tribunal, Residential Property Tribunals, Rent Assessment Committee, Leasehold Valuation Tribunal and possibly the Agricultural Land Tribunal will join other tribunals as part of the Tribunals Service.

The Land Registry is to be retained but with increased private sector funding (presumably this is code for a partial sell-off).

The Leasehold Advisory Service (LEASE) remains under threat and the National Tenant Voice is to be abolished.

The Independent Housing Ombudsman is to be retained.

Interestingly the Legal Services Ombudsman, which only opened its doors on 1 October is to be closed again almost immediately.

Filed under: England & Wales, FLW Article, Northern Ireland, Scotland,

Housing Amendment Act Comes into force in Northern Ireland

We have previously posted on the small(ish) changes being made by the Housing (Amendment) Act (Northern Ireland) 2010. This Act makes a small change to the definition of HMO in the Housing (Northern Ireland) Order 1992. The change widens the definition of a household under the 1992 Order to include uncles, aunts, nephews and nieces.

This change was brought into force by the Housing (Amendment) (2010 Act) (Commencement) Order (Northern Ireland) 2010 and became law as of 31 July 2010.

Filed under: FLW Article, Northern Ireland

What’s in a Signature?

There is some ongoing uncertainty as to the value of a signature. This is particularly true in regard to signatures which have been supplied in an electronic format.

Many agents believe that they need an actual original signature (known as a ‘wet ink’ signature) before a lease can be valid. Some Courts encourage this view by demanding to see ‘originals’ at possession hearings.

This, to some extent, misses the point as to what is going on. A written tenancy agreement is nothing more than evidence as to what the parties agreed between themselves. It can be undermined by evidence if it does not represent the actual agreement between the parties although the Courts are normally extremely reluctant to accept such evidence unless it is very compelling. Equally, a signature is nothing more than evidence that a particular party intended to be bound by a particular document. It is not necessarily the only piece of evidence nor is it conclusive in itself. In other words a ‘wet ink’ signature is not absolute proof that someone intended to be bound by a document. That person’s signature might have been forged, they might not have had sufficient mental capacity to understand the document they were signing, or they might have been placed under duress. All these circumstances can significantly undermine a so-called original signature.

By the same token the absence of a signature is not evidence of an intent not to be bound. An exchange of emails, faxes, or letters in which someone acknowledges that they have read an agreement and intend to be bound by it is as good as any signature. So too would be a verbal acknowledgement made before reliable witnesses. In fact, people who are physically disabled enter into contracts in this manner all the time.

Therefore, when considering whether to accept a signature that has been sent by facsimile or scanned and emailed or when considering setting a firm policy the issue to be considered is not what is ‘legal’ but rather what level of risk is acceptable. If a lease is of a relatively low value then a facsimile signature is probably acceptable. If it is for a lot of money then it would be wise to ask that all signatures are witnessed. The different forms can be combined so that, for example, a firm could set a policy that a lease being signed remotely must have signature’s witnessed while one where an original signature is to be provided or where the lease is being signed in the office is not treated so stringently.

As with all office policies it is important that the system adopted is clear, transparent and has a degree of reasonable flexibility built into it.

Filed under: England & Wales, FLW Article, Northern Ireland

County Court Judgement on Renewal Fees

We have just been made aware of a case in Lambeth County Court in relation to lettings agent’s renewal fees which has gone poorly for the agent concerned.

Chestertons Global Ltd v The Waterfront Partnership & Nicholas H Finney, heard in March 2010 before DJ Wakem, Chestertons sought to recover the sum of £3,807.20 in unpaid renewal commissions. Mr Finney counter-claimed for renewal commissions already paid in the sum of £3667.83.

Initially it was accepted that the proceedings against Waterfront were improperly brought and these were dismissed.

Chestertons first sought to argue that Finney was not a consumer based on the fact that he had purchased the property as an investment. However, Finney only owned one such property and, as we have suggested in a previous post, this is not sufficient to prevent a landlord being a consumer. Accordingly, the Court found against Chestertons on this issue.

Chestertons conceded in Court that the renewal provisions were not a core term of the agreement and were therefore susceptible to a test of their fairness. Given the comments of the Supreme Court in OFT v Abbey National & Others this may have been unwise.

At this stage the Court reviewed the clauses themselves. The Court found that the clauses were not particularly hidden in the manner that was criticised in the Foxtons case. However, they remained insufficiently clear in that they were not specifically flagged to the consumer, they were not expressed in strong enough language, and their effect was not given significant clarity despite their long-term impact on the relationship between agent and landlord and the onerous monetary obligations that they created.

Chestertons were further damaged by the fact that the tenancy agreement they had drawn up contained an option to renew which would leave the landlord tied to a renewal at the tenant’s whim at a rental to be fixed by Chesterton’s themselves and therefore paying a commission on the basis of decisions made by the tenant and Chestertons.

Interestingly the Court also made an order for the agent to return monies already paid by the landlord by way of renewal fees. This was ordered following the House of Lords decision in Kleinwort Benson v Lincoln City Council. The Court asserted that this case found that “where payment was lawfully due under a binding contract but it subsequently became apparent that was not the case the paying party was entitled to return of the payment”. This would appear to be a misunderstanding of the decision in Kleinwort and of the UTCCR itself. In Kleinwort the Lords decided that money paid under the basis of a mistaken that the contract was binding should be returned. However, the UTCCR does not operate in this manner. In Kleinwort the contracts involved were in themselves void. Th UTCCR does not make a contract, or any part of it, void but rather makes certain clauses unenforceable. We have previously posted on the issue recoverability of monies paid under an unenforceable contract.

However, agents would be well advised to take careful note of this case. Irrespective of the merits of all parts of the decision it seems clear that lower Courts have taken note of the decision of the high Court in OFT v Foxtons and are increasingly unhappy with renewal commission clauses that create an indefinite liability. Foxtons settled the case against them by changing their terms of business to limit the time during which they could seek renewal commission. It may be sensible for other agents to do the same.

PainSmith Solicitors supply terms of business for lettings agents and the current version of those terms includes a clause allowing for the length of time that renewal commission is to be recoverable to be limited in the manner adopted by Foxtons. These terms can be purchased online from our document shop.

Filed under: England & Wales, Northern Ireland, Scotland, ,

Recoverability of Money Paid in Relation to Unfair Terms

There is a certain amount of interest recently in the ability to recover monies paid in respect of terms in agreements, which have later been found to be unfair. This has been a live issue in respect of the aftermath of the case of Office of Fair Trading v Foxtons as well as the Office of Fair Trading v Abbey National & Others.

Given the decision of the High Court in OFT v Foxtons, there has been understandable interest in the ability of landlords to recover money in respect of agents’ renewal commission charges where those charges might be unfair.

The first thing to point out is that a finding of unfairness does not make a contract void. Under regulation 8(1) of he Unfair Terms in Consumer Contract Regulations 1999 a term that is unfair is deemed to be unenforceable. Regulation 8(2) clarifies that the making of a single clause unenforceable does not make the contract non-binding provided it can still operate shorn of the unfair clause.

It is accepted law that where a whole contract is void due to a mistake or other problem then there is a total failure of consideration and therefore all payments made can be recovered. Where a contract is rendered void by statute then it will depend on the actual statute whether there is a right to recover monies paid. However, none of this has any relevance to unfair terms matters as nothing in the regulations renders a contract void but merely makes certain clauses within it unenforceable.

Where a contract is unenforceable, and presumably where it contains unenforceable terms, there is no right to recover monies paid unless a total failure of consideration can be shown. Where a degree of service has been provided this is unlikely to be the case.

Therefore a declaration of unfairness, while it will make a clause unenforceable and will certainly therefore prevent further monies being claimed in reliance on it will not necessarily give rise to a right to recover money. It would be necessary to show that the entire contract was unfair and therefore that there had been a total failure of consideration to achieve this.

Filed under: England & Wales, Northern Ireland, Scotland,

HMO Changes in Northern Ireland

Some key changes in the way HMOs are operated are forthcoming in Northern Ireland.

Currently the legislation governing HMOs is part IV of the The Housing (Northern Ireland) Order 1992. This is being amended by some new and proposed legislation.

The first change is being made by the Housing (Amendment) Act (Northern Ireland) 2010 which was passed on 13 April 2010, although it has yet to come into force. The new Act makes a small amendment to the 1992 Order in order to clarify the definition of HMO. Currently the definition of an HMO in article 75(1) states that:

house in multiple occupation” means a house occupied by more than 2 qualifying persons, being persons who are not all members of the same family.

The change amends article 75(1) to make clear that the definition of family is to include “uncle, aunt, nephew and niece”. Apparently this is to recognise that members of an extended family increasingly live under the same roof while still forming one household.

The second change is proposed as part of the consultation on the Draft Regeneration and Housing Bill. Much of the bill is of little interest to the PRS. However, the key alteration is to who deals with the setting of HMO standards and creation of schemes. Currently the Housing Executive is required to prepare and submit a scheme to the DSDNI for its approval. This power is now to be devolved to individual councils. This will allow for HMO schemes to be tailored by each council to their individual needs but has the downside, which has been evident in England & Wales of massive differences between individual local authorities. This may be reduced by the fact that the DSDNI has to approve each scheme but there is the danger that disputes over the contents of different Council schemes will lead to a raft of wasteful litigation. These issues do not appear to have been addressed at all in the consultation document.
This consultation is available for responses until 26 April 2010.

Filed under: Northern Ireland, , ,

OFT v Foxtons- The Final Order

The final sealed order in the OFT v Foxtons case has been made available on the OFT website. A copy can be found here. This order gives effect to the judgement of the High Court and is now the final word on the matter as Foxtons have withdrawn their appeal.
There are some interesting points to note:

  1. Nothing in the order prevents Foxtons from defending claims against them based on monies already paid under clauses that have now been found to be unfair;
  2. Foxtons are entitled to keep using the original renewal commission clauses in full management agreements;
  3. The wording of the offending clauses used by Foxtons is quite extreme in terms of their ability to charge commission on a long-term basis even where the tenant has been changed. The new terms (in the last Schedule) are much less severe
  4. The approved terms are still charging a renewal commission even though Foxtons has no involvement in the negotiation of a renewal but it is limited to 2 years after the initial tenancy and is clearly stated at the start of the terms of business
  5. Fxotns have removed their ability to take a fee where the landlord has sold the property to another landlords with the tenant in place and where the landlord has sold the property to the tenant

The OFT has made clear in its press releases that it intends to use this decision to put pressure on other agents. How far this will go is unclear and whether the OFT will seek to impose a limitation on other agents as to how long they can continue to collect a renewal commission for.

Unfortunately this will probably lead to another raft of ill-informed letters from landlords stating that the renewal fees they have been charged are unfair. However, agents should consider how they wish to move forward and take advice as to their fee structures to avoid a visit from the OFT.

Filed under: England & Wales, Northern Ireland, Scotland, , , ,

Gas Safe Register reaches NI

The Gas Safe Register took over from CORGI in providing landlords gas safety certifications for England and Wales, Scotland and the Isle of Man in April 2009. Despite a few small issues they appear to have been fairly successful and have run a significant advertising campaign.

From 1 April 2010 the Gas Safe Register will be taking over from CORGI in Northern Ireland as well after the Health and Safety Executive Northern Ireland decided that it would be in their best interests to follow the same system as the rest of the UK.

Gas engineers should already be registering with the new scheme and agents and landlords should make sure that their regular engineers have done so well in advance of the changeover date as any certification produced by an engineer not registered with the new scheme after 1 April 2010 will not be valid. All engineers registered with Gas Safe will carry an ID card and an example of this can be found on their website. Hopefully, a similar advertising campaign will be launched in Northern Ireland to promote the new scheme.

Filed under: Northern Ireland,

Foxtons Withdraws Appeal

It is being reported today that Foxtons has withdrawn their appeal to the Court of Appeal to the decision made against them by Mr Justice Mann in their dispute with the OFT.

According to the statement Foxtons have changed their terms of business and these new terms have been approved by the OFT and the Court and so they see no need to carry on.

It is debatable, for the same reasons we have set out here, whether this is a matter that will concern other agents.

Filed under: England & Wales, Northern Ireland, Scotland, ,

Emails as Contracts

In University of Plymouth v European Language Centre Ltd [2009] EWCA Civ 784 the Court decided that in legally binding e-mail correspondence it is essential to have an unequivocal offer and acceptance, together with agreed contract terms.

In the case itself , the parties had been in a contractual relationship since 1998. The University of Plymouth had provided European Language Centre Ltd (ELC) with student accommodation and teaching facilities, by a series of annual written contracts. Until 2005, previous contracts had recognised both parties’ intention to continue the contractual relationship in the coming year. However, the 2005 contract contained no reference to contractual obligations for the coming year, 2006.

During 2005, the parties had discussed by e-mail correspondence, the possibility of the University reducing the number of student accommodation available for ELC to use. ELC did not initially reply, but then in later e-mail correspondence expressed that they found the reduction unacceptable and the parties did not therefore formally produce or agree to a contract. ELC later alleged the University was in breach of contract by failing to provide the reduced beds and submitted that that the email of May 2005 constituted an offer of a reduced number of beds, which it had accepted and relied upon.

The Court noted that the parties had established a degree of mutual trust since 1998, and that it was usual for negotiations to be formally concluded by an annual written contract. The Court therefore held that the e-mail correspondence was lacking in detail and considered that it did not amount to an offer nor a clear acceptance. The Court held that an acceptance must be communicated in a way that objectively sets out on what basis the acceptance was being given and based on the facts before them ELC had done nothing which amounted to acceptance, either by words or conduct. The parties’ comments within the exchange of emails together with the previous contracts were not enough to determine that an unequivocal offer and acceptance had been made.

This decision emphasises the importance of the four essential elements which must exist for there to be a legally binding contract that is; offer, acceptance, consideration and an intention to create legal relations.

Agents are therefore advised to ensure that there is clear communication with Landlords and Tenants and ideally all negotiations should be concluded by written contracts which are clear and free from ambiguity. We have noted that many agents automatically place the phrase ‘Subject to Contract’ within their signature which will have the effect of preventing any contract being concluded this way. However, they should ensure that they obtain instructions and clarify that they or their clients do not want to be bound by informal email or telephone exchanges and should not assume that this is the best position.

Filed under: England & Wales, Northern Ireland, , ,

New Regulations and Agent’s Terms of Business

The Provision of Services Regulations 2009 came into force on 28 December 2009 and apply to all United Kingdom jurisdictions. These were brought into force to comply with the EU Service Directive which required compliance by (strangely) 28 December 2009.

The main effect of these regulations is to require that certain information is made available to users of services in the UK. A large number of services are covered by the regulations including lettings and estate agency and solicitors. While there are a number of ways that this information can be provided it is probably easiest for it to be put into the Terms of Business.

Key information that is required is:

  1. Business name and the status of the business (eg. partnership, limited company, sole trader etc.)
  2. A business address and full contact details (this is partly to deal with internet businesses who wilfully make their business details obscure)
  3. Registration details of any entry in a trade or public register and any statutorily required registrations (for agents this will mean details of their OEA and OFT registrations)
  4. There is also a general requirement to make clear your charges and the other terms on which services are provided.

Some information must also be made available on request. This includes:

  1. The price being charged for the services provided or where that price is not available the method of calculation
  2. Information on any code of conduct to which the supplier is held

Information required under the regulations must be provided in a clear and unambiguous manner and must be available before the contract is concluded.

There is no direct offence of failure to comply with the regulations. However, the Office of Fair Trading, local Trading Standards officers, and the Department of Enterprise, Trade and Investment (in Northern Ireland) have the power to take action for a breach of the regulations.

The Department for Business Information and Skills has provided guidance on the regulations.

PainSmith Solicitors are able to supply updated terms of business which are fully compliant with the regulations.

Filed under: England & Wales, Northern Ireland, Scotland, , ,

2010- What’s to Come

Welcome to 2010! At this time of the year speculation inevitably turns to how things will shape up in the next 12 months. Therefore we have decided to take give a brief run-down of expected events in the residential landlord and tenant sector this year.

Legislation-wise it is likely to be a quiet beginning to the year. The election expected in early May or June means that little or no primary legislation is likely to be enacted and anything that is put before Parliament is only likely to carry on past June is Labour wins the election. Speculation on what other parties will introduce if they win is largely pointless.
However, there are some changes that can be made without the introduction of primary legislation and, following the now established pattern we can expect some new Statutory Instruments to be introduced in early April.
Already on the cards is an increase in the maximum rent threshold of Housiung Act 1988 tenancies from the current £25,000 per annum to a figure in teh region of £100,000. A change of this nature was suggested in the Rugg review and was flagged in the Government’s response.
This change will have a significant impact on the residential lettings sector in central London, where a number of properties exceed this threshold as well as on some student areas as many student HMO properties also exceed this limit. The key change will be that many more of these properties will fall within the realms of the Tenancy Deposit Protection regime introduced by the Housing Act 2004. This will undoubtedly lead to a further surge in litigation in respect of unprotected deposits as well as an increased workload for the three protection schemes.
Also expected is a change in the Mobile Homes Act 1983 which will remove some fact-finding aspects from the Courts and transfer them to the Residential Property Tribunal Service. We highlighted and commented on this just before Christmas.
Elsewhere in the UK, the Scottish assembly has made clear its desire to intorduce a Scottish equivalent to Tenancy Deposit Protection and the regulations to make this happen will no doubt appear before the year is out. In Northern Ireland, a draft Housing Bill has been put forward for further consultation following a an earlier consultation in the latter part of 2009 and this will probably see further activity before year’s end.

In the Courts, the OFT v Foxtons case will rumble on, with Foxtons having now appealed the original decision. More on that here.
Tenancy Deposit Protection will also continue to see the County Courts and there are at least two appeals headed for Courts of record as well. PainSmith has a case in the High Court near the end of January and another case is listed for the Court of Appeal in the spring.

In other areas it is likely that there will be a continued drive by Local Housing Authorities toward extending the licensing of HMOs and other properties under their powers in the Housing Act 2004 and this will, doubtless, keep the Residential Property Tribunal busy.

So there it is. Some small but significant changes in England and Wales. Potentially large upheavals in Scotland and Northern Ireland and some important issues for the Courts to contend with. It will be interesting at the end of the year to see what happened that we did not expect!

Filed under: England & Wales, Northern Ireland, Scotland, ,

Foxtons to Appeal in OFT case

Well, as we suggested might happen here, Foxtons is going to appeal the decision of the High Court in the light of the Supreme Court ruling in the Bank Charges case. The Times has reported this (slightly badly) here.

However, it is questionable whether the implications are as important for other agents as the Times suggests given that the Foxtons decision arguably had little impact on agents whose clauses were drafted in plain and intelligible language.

Filed under: England & Wales, Northern Ireland, Scotland, ,

OFT loses in Bank Charges- Implications for Foxtons

The Supreme Court has handed down their judgement in the case of OFT v Abbey National & Others (the ‘Bank Charges’ case). A copy of the judgement and a press summary can be found here.

The Court was not ruling on the fairness of bank charges themselves but on whether the OFT could investigate them at all. The banks were contending that their charges were part of the, so-called, “core bargain” between them and their customers and were therefore exempt from investigation for unfairness under the terms of Regulation 6(2)(b) of the Unfair Terms in Consumer Contract Regulations 1999. This regulations states that so long as a term is in plain and intelligible language terms are exempt from an assessment of their fairness if they relate “to the adequacy of the price or remuneration, as against the goods or services supplied in exchange”. This, “core bargain” term, was claimed by the banks to exempt their charges for unauthorised overdrafts and other similar charges from consideration. This argument was rejected both by the High Court and the Court of Appeal who in effect carried out a process of dividing charges into “core terms” which were exempt from consideration and “ancillary terms” which were not.

However, the Supreme Court has overruled both of these decisions stating that the banks system of charges must be seen as an overall package for the provision of a banking service which is ‘free while in credit’ and this falls within the exemption provided by Regulation 6(2)(b). They were critical of the exercise of dividing charges up into core and ancillary charges and questioned whether such an exercise could realistically be accomplished.

The Supreme Court made brief reference to the OFT v Foxtons decision but pointed out that the core bargain issue was, while relevant in that case, not vital as Foxtons’ terms of business were ruled not to be in ‘plain and intelligible language’.

The Supreme Court has not made any ruling, or any substantial comment on whether a ruling on unfairness of terms should be pursued retroactively.

Turning to the case against Foxtons. It was ruled that the average landlord would not view a renewal commission as part of the “core bargain”:

That [Foxtons’ publicity material] is hardly likely to engender a realisation or acceptance that the renewal commission is part of the core bargain. As far as the landlord is concerned the core bargain will be getting the tenant in, in exchange for commission which would seem naturally to be associated with that activity, that is to say the commission payable on the first period’s rent.

However, this part of the ruling is now in doubt as a result of the Supreme Court decision. The Supreme Court were not prepared to accept the argument advanced by the OFT in the Bank Charges case that charges levied by the banks would not be acceptable from the consumers viewpoint. The Supreme Court felt that the matter should be viewed from the point of view of both sides and a balanced view adopted. It is not possible to simply state that one party would not have contemplated the charge and leave it at that. Allied to this is the view adopted by the Supreme Court that it is artificial to separate one charge levied as a part of a contract from other charges and deem some of those charges as “core” and some as “ancillary”. This would suggest that this exercise, as conducted in the Foxtons case, is inappropriate and that all the charges should be considered together as a part of an overall package.

It is quite likely that Foxtons will now seek to appeal the decision of Mr Justice Mann. Given that the banks’ charges must now be construed as a package they will no doubt seek to argue that their charging regime must be seen in a similar manner. They will still have the difficulty of their terms being held not to be in “plain and intelligible language” and this is an issue they will need to deal with. No doubt we will find out shortly if Foxtons are to renew their request for permission to appeal or withdraw it altogether.

For other agents, this decision provides substantial comfort. Provided that their terms of business and charges are expressed in “plain and intelligible language” it will be much easier for them to make the case that their charges are a part of an overall package and should be exempt from a consideration of unfairness. The importance of clear and well-constructed terms of business is magnified by this decision and the pressure is removed from many agent’s charging models.

PainSmith Solicitors has always maintained that the terms of business it supplies to agents do (and always have) express charges in a “plain and intelligible” manner. However, they have amended their terms of business as a result of the OFT v Foxtons case to make the charging structure even clearer.

Filed under: England & Wales, Northern Ireland, Scotland, ,

OFT v Foxtons Rides Again (Maybe)

At 9.45am on Wednesday 25 November the new Supreme Court will give judgement in OFT v Abbey National & Others. This case will be well known to most as it relates to the ability of banks to make charges to customers who overdraw their accounts and on the level of those charges. There should also be an indication as to whether banks will actually have to repay money they have previously collected in charges. Quite apart from the impact this case may have on the UK’s leading banks, possibly requiring them to repay hundreds of millions of pounds in charges, there will also be an impact on the ongoing matter of OFT v Foxtons. This is because Foxtons sought permission to appeal from the Court at the most recent hearing after the judgement criticising aspects of their fees had been handed down. However, they specifically requested that the Court refrain from considering their permission request until after the Supreme Court ruling in OFT v Abbey National. Therefore, depending on the judgement of the Supreme Court, Foxtons will either withdraw their request or will seek to appeal the matter to the Court of Appeal.
Additionally, there will be great interest as to whether the banks actually have to pay money back. If they do, this potentially opens the floodgates for previous Foxtons clients to claim return of fees paid to Foxtons which were paid on the strength of clauses deemed by the High Court to be unfair. This could end up costing Foxtons tens of millions of pounds. Naturally, an effort to make Foxtons return money will also have an impact on other agents who have already faced suggestions from landlords that their fees are unfair as well, notwithstanding the ruling against Foxtons being based entirely on the unusual wording used in their terms of business.
PainSmith will aim to post on Wednesday as soon as we have had time to digest the Supreme Court judgement. Watch this space!

Filed under: England & Wales, Northern Ireland, Scotland, , ,

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