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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.

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