Foxtons Pulls Out Of High Court Appeal And Win Their Case
Notorious estate agency defused the ‘money-for-nothing’ timebomb
Last week, Foxtons surprised everyone by pulling out of an appeal against a High Court ruling deeming some terms of its lettings agreements unfair. A victory for the consumer? Don’t bet your life says property guru Linton Chiswick.
The original case, brought by the Office of Fair Trading in February 2008, revolved around three aspects of the estate agents’ terms and conditions: Foxtons’ right to demand sales commission should the tenant buy the property from the landlord; their right to demand agency fees from a landlord after a property’s been sold to a third party; finally – and this was the most reported and most interesting – Foxtons’ right to charge renewal fees if a tenant they’d originally installed decided to renew a tenancy after the contract ended.
This last clause was, and is, a thorny subject among landlords. Why should Foxtons (or any agent, because the practice is, in fact, common, particularly in London and the south) take 10% of revenue even though they’d expended no time, money or energy finding a new tenant? This was widely reported as a ‘money-for-nothing clause’.
For what it’s worth, the ethics can be argued both ways. Shouldn’t a letting agent be rewarded for finding a solid long-term tenant, rather than for quick turnover contracts with the risk of void periods? And if the landlord expects a 50% refund when a tenant exercises a break clause and moves out after six months of a 12 months contract, shouldn’t the agent receive more money when the contract’s extended?
Whatever the arguments, landlords don’t like renewal fees, agencies do, and all interested parties watched OFT v Foxtons in case it turned out to be an important test case.
It didn’t; but it was subsequently reported as one. When, in July 2009, Mr Justice Mann ruled against Foxtons, describing repeat renewal commission as a ‘trap’ and a ‘timebomb’ for consumers, the people rejoiced. The National Landlords Association rejoiced because this was, apparently, an official end to landlords paying “totally unwarranted” commission. The broadsheets rejoiced at a blow struck on behalf of the consumer. At WeHateFoxtons.com, they rejoiced because something bad seemed to have happened to Foxtons.
But Mann’s ruling was widely misunderstood and misreported. He had tried to make clear that his job, in this instance, wasn’t to judge whether renewal fees were, in themselves, fair or unfair, but whether – in the specific context of Foxtons’ own T&Cs – they were being applied fairly. He criticised Foxtons not for charging renewal fees, but for hiding them in the small print, and recommended that, if they were going to be a significant cost, they should be headlined in the agency’s sales literature rather than squirreled away in the T&Cs. Only when hidden, were renewal fees unfair.
As far as Mann was concerned, he had made this clear, but anyone who’s read an official ruling knows that the legal profession’s idea of clarity is different to a time-starved journalist’s. Many people were led to believe renewal fees had been outlawed.
Some landlords began debating whether they should seek legal representation and act while they still had the chance (Foxtons finances weren’t at their healthiest) to recover fees paid under the old terms. Mann had made some kind of distinction between ‘consumer landlords’ and ‘business landlords’. The feeling was that consumer landlords, who weren’t making a living from property investment, might have a case, but not even specialist solicitors were sure. Foxtons, meanwhile, chased fees that had been withheld while the case was being fought. And it was out of this confusion that Foxtons announced, in December, that they were going to appeal the judgment.
So why the sudden change of heart? Foxtons have been rather clever. The appeal presumably bought them some time. And during that time, they’ve drawn up new, clearer terms, including a much reduced renewal fee and a maximum term (two years) in which it might apply. Making the new commission levels more ‘reasonable’ and less unexpected presumably took a bit of the heat off when it came to drafting the new documents.
Everything’s now passed with OFT and with the courts, effectively making the documents watertight… no argument, no complaint, no comeback. At last that’s clear.
So, what was originally reported as a legal blow against Foxtons and renewal fees has turned into a powerful legal blessing. I wonder who’s rejoicing now?
Originally published on Citywire. Linton Chiswick is the proprietor of residential property blog Rat and Mouse.
February 15, 2010