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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.

14 Comments

  • Paul Long 12th July 2009 at 4:05 pm

    Great article and very clear – it is such as worry and shame that so many articles have been printed by large papers stating that landlords can claim fees back – more work for the lettings industry to deal with !

  • M Galberg 13th July 2009 at 8:31 pm

    Of course each case will depend on its facts. However take Foxtons itself, if a landlord has contracted on their standard terms then we know, because the court has said so, that their renewal commission clause is not enforceable. Foxtons cannot claim renewal commission based on that clause. Suppose, however that the landlord has already paid one year’s renewal commission to Foxtons. Why can he not claim it back?

    The court is silent in relation to this potential cause of litigation because it did not form part of its decision. It was not necessary to make any pronouncement on this point in order to decide the case between OFT and Foxtons. It was not a case about the reclaiming of commission , wrongly paid. Why does it follow from this silence that renewal commission cannot be reclaimed ? Perhaps another court may have to determine this point, if someone attempts to re claim renewal commission

    In the case of Foxtons this renewal commission would have been paid to them, in circumstances where there was in fact no legal basis for such payment. It was a mistake, both parties thinking that the there was a legal obligation to pay when in fact there was none.

    Why may it not be possible to sue Foxtons for return of renewal commission as money had and received? And if so, it may also be possible to sue other agents for the return of renewal commission? Although in the case of other agents it would first be necessary to prove that the term in their contract relating to renewal commissions offended the Regulations and was not enforceable.

    I do not know the answers to these questions. I simply suggest that without some further explanation and analysis it may not be correct to assume that renewal commission can never be successfully reclaimed.

    Has anyone any ideas on this topic

  • PainSmith 13th July 2009 at 8:48 pm

    It was not the intent of this post to suggest that nobody can claim repayment of renewal commission ever. Rather the intent was to point out that, contrary to reports, that was not where we are today.
    The real answers to these questions will probably be resolved by the House of Lords in its consideration of the case relating to bank charges.

  • L Vaughan 14th July 2009 at 9:03 pm

    Foxtons owe my company some £3,000 in Inventory work carried out typed up and delvered but never paid for. Would it be worth my while considering a claim against the company for work carried out in 2000/1/2.

  • KRD 15th July 2009 at 11:20 am

    The decision of the Court of Appeal in April of this year would suggest that the recent ruling does encompass both contracts yet to be concluded and contracts already concluded.
    http://www.bailii.org/ew/cases/EWCA/Civ/2009/288.html

  • PainSmith 15th July 2009 at 2:43 pm

    @L Vaughan. I don’t see why not

    @KRD. I think you are misunderstanding the meaning of a concluded contract. A concluded contract is one that has been agreed to and is in operation. Foxtons cannot rely on clauses in these to claim fees. A concluded contract is not one that has finished. Nothing in the current judgment requires return of monies although that option remains available to the Court

  • lloorree 26th July 2009 at 10:35 pm

    2 points:

    1) Surely Mann J’s ruling, in relation to Foxtons’ “renewal commission”, that both the “old” and “new” terms were unfair (at paragraphs 96 -98) needs to be considered in light of Regulation 8 of the Unfair Terms in Consumer Contracts Regulations 1999, which states:

    “8. – (1) An unfair term in a contract concluded with a consumer by a seller or supplier shall not be binding on the consumer.

    (2) The contract shall continue to bind the parties if it is capable of continuing in existence without the unfair term.”

    In those circumstances, how can Foxtons NOT return a renewal commission?

    2) What if Foxtons charged the renewal commission AFTER the judgement? Would it still be payable?

  • PainSmith 28th July 2009 at 10:51 am

    @lloorree Because at the time foxtons charged the money it was not iunfair. They cannot charge any more and if they do under the wording that has been disapproved then it will not be payable. However, the judgement is not currently retroactive.

  • Anonymous 4th August 2009 at 4:39 pm

    when do you say that Foxtons should have stopped charging the money – this judgment or the April/May judgment?

    If money has been retained by Foxtons (bearing in mind that they normally have the tenant pay then before they pay the landlord) post either of the 2 above dates, surely they must return it?

  • PainSmith 4th August 2009 at 7:03 pm

    As it was only at the stage of this judgment that Foxtons terms were found to be unfair then only at this stage. The April/May decision said nothing about the terms and was more an issue of case management.

    If Foxtons has retained money post the second judgment they must surely return it. Earlier than that would again require the judgement to be retroactive and that is not a point that has been decided.

  • Anonymous 7th August 2009 at 5:41 pm

    Dear Painsmith,

    Surely the point is that the terms have always been unfair (and therefore null and void) and all the judgement did was to CONFIRM this (meaning Foxtons are liable to repay all ill gotten commissions).

    You can’t really be saying that someone will be allowed to benefit from unlawful terms up to the point that they are ruled unlawful??

    Such an eventuality would make a mockery of justice.

  • PainSmith 7th August 2009 at 8:11 pm

    These are moral questions. All we have ever said is that the English legal system is generally against retroactive situations. Until the House of Lords or another Court so rules it is not correct to say that Foxtons or any other agent has to return monies paid to them. This is not taking a view on the rightness or wrongness of the position but simply saying that it is for the Courts to decide.

  • Anonymous 28th September 2009 at 5:29 am

    Does it make a difference if the landlord:

    a) knew or believed that renewal commissions [“fees”] were potentially illegal (and was aware of the pending Foxtons case);
    b) was oblivious to the Foxtons case;
    c) paid the fees under protest?

    Is there a distinction between fees deducted at source from rent paid by the tenant (and then forwarded to the landlord by Foxtons) and fees paid directly by a landlord to Foxtons

  • PainSmith 28th September 2009 at 10:55 am

    The case only deals directly with Foxtons although other agents fee clauses will be considered by the same measure. To look at the specific cases:
    a) This would hardly help a landlords case as the landlord then chose to agree to a clause when they knew they did not have to.
    b) This is not really a relevant issue.
    c) If the monies have been paid then there is (currently) no route under the UTCCR to recover the funds unless you try the route of unjust enrichment.

    Not really, no. Although if the monies were deducted at source then an unjust enrichment claim might be more powerful.

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