Painsmith Landlord and Tenant Blog

A practitioners landlord and tenant law blog from PainSmith Solicitors

Consumer Rights Act 2015 and lettings agent fees. More duties for lettings agents?

From 27 May 2015 there will be a statutory duty on lettings agents in England  to publicise the fees they charge.

What needs doing?

  1. Agents need to display prominently in each office and on the agent’s website ( if there is one):
    1. A list of fees. The list must give enough information so that a person can work out what exactly they are paying for, and why, and how much it will cost. The list must set out whether the fees are per property or per individual. Where there is a joint tenancy is it one fee for all, or for each individual to pay? The fees must be set out inclusive of VAT ( and any other applicable tax), and where that fee is not determinable in advance, a description of how the fee is calculated, for example Landlord’s commission fees.
    2. If the agent holds client monies, a statement as to whether the agent is a member of a client money protection scheme.
    3. A statement to say that they are member of a redress scheme and giving the name of that scheme.

Who needs to do it?

Lettings agents in the Private Rental sector. Local authorities are excluded. The duty (and therefore any penalty) falls upon the agent and not salaried employees of the agent.

What does “fees” mean in this context?

For the purposes of this legislation “fees” means “ the fees, charges or penalties which a landlord or tenant pays to the agent in relation to letting agency work, property management work or otherwise in connection with an assured tenancy or a dwelling-house let under an assured tenancy”. Some exclusions are set out. Rent and Deposits are excluded ( but not “holding deposits”) and some third party fees e.g. agent paying a contractor on behalf of a landlord.

Penalties for non compliance

Trading Standards can fine an agent up to £5000.00. The first step is that they would serve a “notice of intent” upon the agent setting out the proposed penalty and reasons for it. The agent has 28 days to respond. Trading Standards then decides whether to impose the penalty and if it does, will send a “final notice” requiring payment within 28 days. If the penalty is imposed an agent has a right to appeal through the FTT .

More detail can be found in the explanatory notes to the act.

When does it need doing?

Agents will need to be in compliance by 27th May 2015

In fact, most agents who are already adhering to the requirements of membership of a particular professional body and complying with the rules of their redress scheme, are likely to already be doing the above.   Of course all agents should check that they are compliant with the new legislation, but those who are not already doing the above need to put measures in place to ensure that they are doing so by 27 May 2015.

Filed under: England only, , , , ,

Agents, bribes and secret profits

 

FHR European Ventures LLP and others (Respondents) v Cedar Capital Partners LLC (Appellant) [2014] UKSC 45

It is a well-known principle that an agent must account to his principal, and that an agent who holds or receives money on behalf of his prinicipal is bound to pay over or account for that money. If a third party then sues the agent for that money, the agent has the right to bring in the principal (“interplead”).

It is also a general principle that an agent owes a fiduciary duty to his principal because he is someone who has undertaken to act for or on behalf of the principal in circumstances that give rise to a relationship of trust and confidence; and as a result the agent must not make a profit out of his trust; and an agent who acts for two principals with potentially conflicting interests without the informed consent of both is in breach of his obligation.

This summer the Supreme Court examined the application of that principal when moneys have been received by an agent as a bribe or a secret profit.

In the case of FHR v Cedars  an agent negotiated the purchase of share capital on behalf of its principal ( the buyer).  Unbeknownst to the principal the agent had made a deal with the seller that they would receive a commission of 10 million euros following the successful sale and purchase.  The buyer, when it became aware of the deal, sued its agent for the 10 million euros.

The Supreme Court held that a bribe or secret commission accepted by an agent is held on trust for his principal;  not only did the principal have a right to sue for the sum equal to the benefit the agent had received, but that the principal has a proprietory interest in that benefit.

“where an agent acquires a benefit which came to his notice as a result of his fiduciary position, or pursuant to an opportunity which results from his fiduciary position, the general equitable rule ( “the Rule” ) is that he is to be treated as having acquired the benefit on behalf of his principal, so it is beneficially owned by the principal……a bribe or secret commission accepted by an agent is held on trust for his principal”.

In the sphere of lettings, if a landlord’s agent makes a secret profit, that profit is considered to be the property of the Landlord. Clearly an agent holding or receiving rent must hand it over to the landlord:  it is the landlord’s money. An agent holding overpaid rent should also hand it over to the landlord, and let the tenant pursue the landlord for the refund (although that principal is under challenge from consumer protection regulations and codes of conduct).  But what would constitute a bribe or secret profit, the benefit of which would belong to the landlord?

Consider the following examples.

  • An agent arranges for a contractor it has on its books to do work for its managed properties.   The contractor, in exchange for the work, agrees to pay the agent 10% of its profits from the work done. If the agent does not disclose the arrangement and get the agreement of both parties, the agent will be in breach of his duty and that profit will belong to the landlord. Where it is set out in the agent’s terms of business with the landlord that he takes a cut from the contractor, the agent can rely on that clause to show he is not in breach and that the landlord was fully aware and could give informed consent. Again the ability to accept such payments is under challenge from consumer protection regulations.
  • An agent facilitates an early surrender of a tenancy. The Landlord agrees unconditionally.   The agent asks for and takes a lump sum payment from the tenant as consideration for the early surrender but does not tell the landlord of the deal, nor does he pass the money on. That payment belongs to the Landlord. If you are seeking a payment from the Landlords tenant, even if to cover your administration charges, this should be disclosed to the Landlord and agreed by them.
  • The terms of business between agent and landlord provide that the cost of an inventory clerk will be £200.00 plus £50.00 admin fee for arranging the same. The inventory clerk gives a discount of £50.00 and charges only £150.00. The agent does not tell the landlord and charges the landlord £250.00. £50.00 of that money belongs to and must be handed over to the landlord.

Where agents are acting as estate agents any breach of such fiduciary duty could lead them to be struck off. Lettings agents are now at risk of being ejected from the compulsory redress schemes and unable to practice, as well as of being sued for negligence etc.  However agents can protect themselves by agreeing fees with their clients at the outset, and declaring and passing over any monies that come to them during their instruction. Transparency as to all arrangements for receiving payments from any third party connected with the tenancy is key.

 

 

 

Filed under: England & Wales, ,

I predict a riot – Anti-social behaviour Crime and Policing Act 2014

The Anti-Social Behaviour Crime and Policing Act 2014 (the Act) was given royal assent in March 2014. It amends the Housing Act 1988 to include a new mandatory grounds for possession based on anti-social behaviour. Sections 97 to 100 ( in Part 5) of the Act deal with the new grounds for possession relating to Assured Tenancies ( of which Assured Shorthold Tenancy is a subset). These provisions are not yet in force, and will come in via a Commencement Order sometime in the future.

New ground 7A

In summary ground 7A of schedule 2 of the Housing Act 1988 will provide that the court must give possession if any one of 5 conditions are met:

1. the tenant and/or another occupier or visitor has been convicted of a serious offence and that offence took place in or near the property; or elsewhere but against a tenant/occupier of the property; or against the landlord or agent
2. the tenant/occupier or visitor has breached an injunction to prevent nuisance and annoyance( which is a new injunction to be introduced under this act)
3. the tenant/occupier or visitor has breached a criminal behaviour order ( also new order under this act) and that breach was in or near the property, or caused or was likely to cause harassment to a tenant/occupier or landlord/agent, wherever it took place.
4. the property has been closed down under s73 of the Act. The court has a power to prohibit entry to a property where the use of the premises has resulted in or likely to result in serious nuisance to members of the public.
5. the tenant is in breach of an abatement notice relating to statutory nuisance ( breach of Environmental Protection Act 1990 or noise nuisance

The grounds will not be made out if the conviction is in the process of appeal, or has been overturned.

There are time limits: for example for 1,3 and 5 the notice must be served within 12 months of the conviction; for 2 within 12 months of the court making its finding; and for 4 within 3 months of the closure order. The date that the notice expires and after which the landlord could bring proceedings will be one month from the date of service during a fixed term tenancy, or for periodic tenancies, the earliest date that the tenancy could be brought to an end by a notice to quit. Interestingly the reference to the common law principal of notice to quit suggests that in a periodic tenancy, where a landlord can give only two months’ notice at any time, a notice given under 7a will need to expire at the end of a period of the tenancy.

Why ground 7A? Because the mandatory grounds for possession go from 1-8 so this ground has been shoe-horned in at no 7A and is not related to ground 7.

Will it ever be used? In a fixed term then possibly, especially if the fixed term is for a relatively long period with no break clause. In a periodic tenancy arising after the end of a fixed term, unless and until the use of section 21 is limited, why use ground 7a, which would require a hearing and expire at the end of a period, when you could simply serve two months’ notice under the ruling in Spencer v Taylor and the accelerated procedure.

The discretionary ground 14 is also to be amended to make it a ground if the tenant or occupier “has been guilty of conduct causing or likely to cause a nuisance or annoyance to the landlord of the dwelling-house, or a person employed (whether or not by the landlord) in connection with the exercise of the landlord’s housing management functions, and that is directly or indirectly related to or affects those functions”. There is no need for the conduct to take place at the rented property.

Controversially, ground 14ZA is added to include that the tenant/occupier has been
convicted of an offence which took place during, and at the scene of,
a riot in the United Kingdom.

Filed under: England only, , , , , ,

New CMA Guidance for Lettings Professionals

The Competition and Markets Authority (CMA) which replaced the OFT earlier this year issued on the 13th June 2014 “Guidance for lettings professionals on consumer protection law”. Plainly for anyone involved in the Lettings Industry a must read document!

Much of what is included within the guidance is not new. It helpfully pulls together various guidance which has been issued and incorporates it in one document. The underlying principle throughout is that letting professionals must act fairly with all they come into contact with. This is a positive obligation which you must actively set out to achieve. This objective mirrors the Consumer Protection Rules and also the CAP Guidance on advertising issued last year.

We will be studying the guidance carefully and watching how over the ensuing months this is applied by both CMA and Trading Standards officers in their dealings with agents.

Filed under: England & Wales, , , , , , ,

Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013

As many of you are aware the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 came into force on 13 June 2014 (the Regulations).

Rental agreements are specifically excluded so the Regulations do not apply to tenancy agreements but all other contracts are potentially caught. Particularly, the Regulations do apply to lettings and sales terms of business with landlords/sellers that are individuals acting outside their business.

To comply with the Regulations, you are required to give certain information to the consumer. What is required depends on where the contract is concluded. A notice of right to cancel may also have to be given.

If you are required to give notice of the right to cancel, you are advised not to undergo any work during the cancellation period (14 days) unless and until the client requests you to do so in writing otherwise you will not be entitled to charge for the work undertaken.

In light of the Regulations, we have updated our template lettings and sales terms and these are available for purchase from our online shop. Alternatively, if you want to keep your standard form, we have produced a stand-alone template of clauses to be inserted to help you when you are amending it (please note though that this is a template and may need to be adapted to fit your own documents). All versions come with guidance as to when and how the Regulations apply.

If you would like assistance in tailoring to your terms please contact us and ask for a quote.

Prices at going to press:
£150.00+VAT Sales Terms
£150.00+VAT Lettings Terms
£75.00 Guidance and clauses

Filed under: England & Wales, , , ,

Office of Fair Trading to study Residential Property Management services

The OFT last week announced that it intends to launch a market study into the residential property management field for leasehold property in England and Wales.

Ahead of the study the OFT has invited interested persons to tell them about what areas they should be concerned about. Their Press Release sets out what areas the OFT is particularly interested in and so if you are involved in this sector you should be reviewing this and consider what if anything you want the OFT to look at.

Recently leasehold law does seem to have come on to the political agenda so it will be interesting to see what steps the OFT takes following on from its investigation into retirement home security services.

Filed under: England & Wales, , , , , , ,

Lettings Fees in the news

Shelter has stepped up its campaign to make it unlawful for lettings agents to charge any fees at all to tenants. You can read their report here. The average compulsory lettings fee that renters pay to a landlord’s agent in setting up a tenancy is £355.00. The charity would like to see tenants’ costs limited to the protected deposit and rent in advance as it is in Scotland.

Painsmith receives frequent queries about agents’ fees, and what can and cannnot be charged. The position currently is that agencies must be transparent about their fees, which should be an accurate reflection of their actual reasonable costs rather than an unsubstantiated sum. We have blogged on this before .

The Advertising Standards Authority recently ruled that agents must publicise their fees and charges in their quoted prices, or at least provided enough information for potential renters to calculate what they will be charged.

There is already a great deal of consumer protection legislation, e.g CPR Consumer Protection from Unfair Trading Regulations 2008, UTCCR, as well as regulatory bodies such as the Property Ombudsman. Regulation 6 of the Consumer Protection Regulations prohibits misleading omissions, which includes the providing of material information in a manner that is unclear, unintelligible, ambiguous or untimely. To charge extortionate fees is already either unlawful or unenforceable.

If it becomes unlawful to charge tenants any fees at all it has been argued that the cost will have to be picked up by tenants later on down the line through higher rents ( although in its report Shelter says that since Scottish law was clarified there has been no significant rise in rents). That said, if Shelter succeeds in effecting a ban on lettings fees, agencies will no doubt adapt. It may even cause a demise in the number of rogue agencies that are currently operating.

Filed under: England & Wales, England only, , , , , ,

Lettings Fees

The Advertising Standards Authority (ASA) has decided that all charges that will be imposed on a proposed Tenant must be made clear in all advertising of the property prior to the letting. In other words, no hidden fees.

This comes after a complaint was made against Your-move.co.uk Ltd ( Your Move) stating that an advert that had been placed on Rightmove did not contain details of compulsory charges such as administration fees. It is worth noting that the advert in question stated that fees would be payable and even then had a link to Your Move’s own website that did specifically detail the charges. The ASA decided that this in itself was insufficient and the exact fees needed to be stated on the advert itself. In addition to this, if there are fees the value of which are not known at the time of advertising then it will need to be explained how those charges would be calculated.

The fact that this issue has been addressed now is not surprising given the report that the OFT ( Office of Fair Trading) has recently published which criticised the disclosure of letting agent’s fees which are payable by Tenants. With these findings coming it would be prudent for Letting Agents to “get their houses in order” to quote Guy Parker, the Chief Executive of the ASA, and ensure that fees are transparent so that they are not the ones that fall foul of latest requirements.

Currently, Rightmove’s own policy is that fees are not included in any of their advertisements. Whether they will be looking to change this in light of the above is unclear but as this case shows the letting agent will not be free of the obligations simply by following Rightmove’s protocol and so it should be requested that the fees are included in any such advert taken out on their site.

It would appear that there will be a tough approach on this and as such until proper guidance has been given (we would expect a number of relevant authorities, Office of Fair Trading included, to be issuing guidance imminently) our advice is that all advertising or publicity material (including window cards, brochures and website posts) contain the non-optional fees payable so that it is reasonable that any proposed Tenant looking in to the letting of a property will know the exact amount that they will be required to pay.

Filed under: England & Wales, , , ,

Wood burning stoves and what agents need to know.

Over the past few years wood burners and open fires have come back into vogue. Most people agree that sitting in front of a fire on a cold winter evening is something they like to do. Open fires and wood burning stoves bring there own complications.

As part of the structure of the building landlords have an obligation to keep the stove and the chimney in good repair. Landlords should also check what the requirements are of any building insurer with regards to the same.

We have recently received questions asking whether landlords need some form of certificate; and can tenants be required to clean the chimney?

With regards to any fuel burning appliance installed after October 2010 it must comply with appropriate Building Regulations. This means that any such appliance must either have been installed by a HETAS approved engineer, who can then self certificate, or specific Building Regulation consent should have been obtained. A homeowner should ensure that such certification is kept in a safe place as this may be required. Under these regulations a carbon monoxide detector will also have to be installed which the landlord will have to check is in good order. The landlord will then be responsible for the ongoing maintenance and repair of such a stove whilst it is in the property. For appliances installed before this there is no specific requirement for certification save that landlords should be satisfied that they are safe and as part of this they would be well advised to ensure that a carbon monoxide detector is present.

We would always recommend that landlords carry out regular inspections to check what, if any, repair or maintenance issues may exist. There is however currently no statutory requirement to obtain some form of annual certification.

Generally such stoves require for general safety that the chimneys are swept at least once in every twelve month period. Many tenancy agreements contain a term that the tenant should ensure that this takes place. Some commentators seem to indicate that this is an unfair contract term relying on the guidance issued by the OFT in 2005. We disagree.

In our opinion provided a landlord can show that the chimney was swept before the start of a tenancy it is not unreasonable to place an obligation upon a tenant to ensure that the chimney is swept at regular intervals provided there is no obligation for them to return the property with the chimney in a better state than it was given to them. This can only apply to having the chimney swept and any maintenance which may be required from time to time would be the landlord’s responsibility. We are not aware of any specific challenges made by tenants to such terms and if anyone is would welcome hearing from them.

To summarise our view is that a well advised landlord will check if the installation was after October 2010 that they have a copy of the certificate. They will prior to any tenancy have the chimney swept (or make sure they have evidence that this happened) and also make sure that in any pre-tenancy inspection they check no repair or maintenance issues arise. We would always suggest that if in doubt a reputable professional is employed to undertake a check and the prudent landlord will ensure that their property has smoke and carbon monoxide detectors fitted.

Filed under: England & Wales, , , , ,

Private Rented Sector Consultation

Just a reminder to everyone in the Rental Industry that the Communities and Local Government Select Committee is currently conducting an enquiry into the private rented sector. Submissions have been invited from any interested party dealing with the private rented sector. Submissions should be emailed to clgev@parliament.uk by 17th January 2012.

In particular submissions are being sought in connection with possible rent control and also regulation of the sector. Full details can be found here.

Filed under: England & Wales, , , , , , , , ,

Why do I need a tenancy agreement?

The simple answer to this question is that for most circumstances you do not strictly need a written agreement however if you don’t this can have unintended consequences!

As regular followers of the blog will know the starting point for determining the terms and what you should do in a particular instance is the tenancy agreement. If no written agreement exists it will be a question of trying to recollect what was discussed and possibly looking at any letters or emails about the negotiations to determine the parties intentions. This can result in the terms being unclear particularly if a dispute has arisen.

Assuming we are discussing Assured shorthold tenancies, which are the majority of private letting agreements, as many of you will know this is now the default tenancy in most cases ( for exactly what is an assured shorthold tenancy see the Housing Act 1988 as amended). If you are taking a deposit you are now required to register such a deposit with an approved scheme of which there are three. As part of this process you are required to give certain prescribed information. If you do not do you will not have complied with the rules. Most standard agreements which can be purchased ( such as those we produce and are for sale in our shop on our website) incorporate this information. For this reason giving an agreement, practically, can be easier to ensure the information is given and nothing is missed.

If then you have a written agreement you can specify the exact terms. Whilst you cannot contract out of rules laid down by Parliament, such as the landlords responsibility to keep the property in repair, you can make sure everything is clear. This can be things as diverse as the length of term and break clauses through to restrictions on smoking or loud music (although you might want to have a look at the Office of Fair Trading (OFT) guidelines to check the likely enforceability of your clause). Such comprehensive agreements allow you to effectively manage your investment and to make sure that both sides are clear as to what to expect from the other. Having an effective list of rules of occupation can assist in helping any potential disputes being seen off as having a clear reference to point to.

Whilst sorting out the paperwork can sometimes appear to be a chore if and when you are faced with a dispute it is vital. As we have repeatedly blogged the courts will take the agreement as the starting point. If you have no agreement in writing often the courts will find it difficult to impose onerous terms on one or other party unless it can be shown unequivocally that this was agreed. Whilst relying on terms other than rent or operation of a break clause to evict can be difficult in our experience without a rewritten agreement it is almost impossible.

So take 5 minutes and make sure you have an agreement which is up to date and covers what you want and require.

Filed under: England & Wales, , , , , , ,

A survey of tenants experience……

A survey of tenants experience……

Resolution Foundation, an organisation that works to highlight the experiences of low-to-middle earners (LMEs) through its research has published a report on its survey of tenants experience in the private rented sector.

Resolution Foundation conducted I mystery shopping exercise of 25 letting agents and also spoke to tenants about their experience in the lettings market where a letting agent was involved. The main cause for concern appears to be that the lettings agents are unregulated and that there is a lack of transparency with agents charging arrangements.

The survey found that many agents do not confirm what these fees are in the initial paperwork which can cause some financial difficulty even before the tenancy has begun. PainSmith Solicitors has for many years stressed the importance of confirming these fees at the outset so these results are alarming especially given that in some cases they may not be recoverable under the Consumer Protection from Unfair Trading Regulations.

The report has therefore made the following recommendations:

-letting agents to be brought under the Estate Agents Act (1979), thereby giving the Office of Fair Trading powers to ban agents who act improperly;

-all letting agents to become members of an ombudsman service, giving tenants the opportunity to pursue redress in cases of poor practice;

-an amendment to the code of practice of the ombudsman service to make it a requirement for agents to present landlord and tenant fees on their websites, in adverts and in all paperwork in a way that is easily comparable across agents;

-government to make use of the 2012 retendering process for the tenancy deposit protection schemes to find ways to make it easier for tenants to use their old deposits when moving in the private rented sector;

-local authorities to extend rent deposit schemes to members of the low-to-middle income group.

Whether or not you agree with the recommendations it is important that tenants understand what they are expected to pay and when. These fees should therefore be confirmed in writing before any agreements are concluded to ensure that the fees are recoverable.

Filed under: England & Wales, England only, , , , , ,

Tenants Insurance

We have been contacted by a number of agents with regards to the insurance clauses in their tenancy agreements and in some cases their terms of business.

We understand that a well known landlord insurance company is suggesting that some of our clients need to amend their terms of business and tenancy agreements in line with the office of fair trading (OFT) guidance.

The clause that is causing the problem relates to the insurance the tenant is advised to obtain. PainSmith Solicitors documents advise tenants that they should obtain insurance and warns them that the landlord insurance will not cover their belongings. The clause is therefore not unfair as the tenant is not forced to obtain insurance.

The guidance that the insurance company is referring to was published in 2005 therefore we are unclear as to why this has been raised by them now however, if you are using PainSmith Solicitors documents and assuming that the clause has not been amended then you are all advised that the clause complies with the OFT guidance and as such no papers need to be sent to the insurance company for them to “check”.

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

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,

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, , , ,

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, ,

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, , ,

Landlords as Consumers

One of the biggest difficulties in dealing with unfair terms questions relates to the point that it only applies to consumers. The Unfair Terms in Consumer Contract Regulations 1999 (UTCCR) define a consumer as “any natural person who … is acting for purposes which are outside his trade, business or profession”. This definition is particularly problematic when we consider the position of a landlord. While it seems fairly clear that a casual landlord with one or two properties is largely within the definition of a consumer the position becomes less certain when dealing with landlords who own several properties, who may be highly sophisticated and experienced, and who derive a substantial percentage of his income from his activities.

In the past there has tended to be a view in the industry that a landlord with more than a certain number of properties should be viewed as being outside the ambit of a consumer. However, this immediately raises the question of precisely how many properties should mark the boundary. The Solicitors Ombudsman Scheme has indicated recently that it views the threshold to be four properties but it has not provided any clear understanding of how it arrives at that position.

The question of how to categorise the more sophisticated and knowledgeable client has, surprisingly, not exercised the Courts a great deal but the one apposite case indicates that a concentration on the number of properties may be missing the point.

In Standard Bank London Ltd v Apostolakis & Anor [2002] CLC 933 the Court was required to consider a contract relating to currency trading between a UK bank and a Greek couple. The Greek couple were highly educated professionals, being a civil engineer and a lawyer, and had been trading currency for many years. The income of this made up approximately one-fifth to one-quarter of their total income from all sources. During the course of a number of futures trades the couple built up a significant exposure which the bank eventually liquidated when the situation turned radically against them in 1998. For a number of reasons the Court was required to consider whether the Greek couple could be found to be consumers under the terms of the UTCCR.

The Court found that a contract for foreign currency trading was not part of the normal trade or profession of the Greek couple. The Court further found that despite the couples evident education and experience with currency trading they were still not acting in the course of a trade or profession by entering into the currency trading that they had. The Court found that they were rather “disposing of income which they had available.” They were “using their income in what they hoped would be a profitable manner” and were not “trading in foreign exchange in the sense that a bank or dealer can be said to trade.”

If we bring this view across to the world of the private landlord we paint a bleak picture. It would appear by analogy that a private landlord who simply invests his income in a degree of property speculation should still be viewed as a consumer as they are not speculating in the sense that a property developer does. To step outside the realms of a consumer the landlord would appear to need to be dealing by way of a company vehicle or be deriving the majority of his or her income from such transactions.

In short, it would be a dangerous tactic for any agent to rely on showing that an individual landlord was not a consumer as a means to defeat a claim under the UTCCR.

Filed under: Uncategorized,

OFT v Foxtons- Renewal Commissions and Mis-reporting

Following the decision in OFT v Foxtons on Friday there has already been a great deal of mis-reporting of the outcome.

One of the most noticeable points relates to the issue of renewal commission and the suggestion in much of the media that renewal commissions are unfair and that landlords will be able to recover commission already paid.  This is simply incorrect.  Unfortunately, as a result of these misunderstandings many agents have already been contacted by landlords demanding repayment of alleged unfair fees.

It is worth considering the judgement in detail at this point.  In paragraph 33 of his judgement Mr Justice Mann said the following:

I should first make clear what I am not deciding, and what I am not asked to decide. I am not asked to decide, and do not decide, that renewal commissions (in the sense used in these proceedings) are always unfair. I make that clear because some of the evidence and submissions of the OFT come close to asserting a case that they are always unfair, and some of the correspondence seemed to be based on such a proposition, though Mr Nicholas Green QC, for the OFT, eventually made it clear that that was not his case. Mr Michael Kent QC, for Foxtons, opened his submissions by saying that I would eventually have to, and should, rule on renewal commission generally, but he moved away from that. I shall not decide whether or not renewal commission is always unfair to consumer landlords.

Therefore, the judgement in no way states that renewal commission is unfair.  What was decided was that Foxtons renewal commission clauses were not worded in plain and intelligible language and were excessive in the level of commission charged and in their wider definition of renewals by associates of the tenant which would also attract a fee.

The other area of mis-reporting is in relation to the rights of parties to demand the return of sums already paid.  Contrary to the decisions made in the various cases involving bank charges there is nothing in this judgement which allows for monies already paid to be recovered.  This particular issue was one which Foxtons fought hard to avoid and at the current time the Court has not made any ruling in relation to it.

In short, no agent is in any way obliged by Friday’s decision to return monies to any party.

Filed under: Uncategorized, ,

Initial response to OFT v Foxtons

Following the ruling today in this matter, letting agent terms of business may well contain some significant flaws and unenforceable terms.  In particular any term which seeks to charge a commission fee where the landlord sells the property to the tenant will be deemed unfair.  In addition, where an agent seeks to charge commission on a renewal where the landlord has sold the property to another landlord such clauses will be deemed unfair.

What is not unfair is the charging of a renewal fee, even where the agent has not been involved in the negotiation of the renewal, provided that this charge is signposted to the landlord at the outset of the instruction and drawn to their attention.  The reporting of this matter is inaccurate in this aspect.

Nothing in today’s judgement requires agents to refund monies to landlords but it will prevent agents from using or relying on clauses that have been found to be unfair.

PainSmith have already amended our standard terms of business and are able to provide these for immediate use as a stop-gap measure until such time as agents can amend their standard terms.

Filed under: Uncategorized, , ,

OFT v Foxtons Links

The OFT press release on today’s judgment can be found here

The judgement can be found in full here

Filed under: Uncategorized, ,

OFT v Foxtons – early hints

Its 9.30 and we’re waiting for the judge to give his decision which should start 10.00. It appears that both parties have had early copies of his judgment and hints have started to leak. First indications appear to show that the oft have succeeded on the matter of charging commission to landlords who sell their property to tenants or occupiers and this type of provision may well now be considered unfair.

The oft have further succeeded in relation to charging commission to landlords who have divested themselves of their interest in the property and where the new landlord renews a tenancy with the original tenants. It appears, however, that charging of renewal commission in other circumstances even where the agent has not been directly involved in the negotiations of the renewal is acceptable provided that the terms of the agreement are expressed in plain and intelligible language. It may well be that many clauses currently in use fall short on that requirement.

It seems that some early comments on the news media this morning may have been premature. More information as we get it.

Filed under: Uncategorized, ,

OFT v Foxtons

The judgement in this matter is being rendered at 10am tomorrow in the High Court. PainSmith solicitors are contracted to one of the main organisations representing lettings agents to provide a brief electronic response and a full consideration. The brief response should be available late tomorrow.

Filed under: Uncategorized, ,

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