Foxtons v OFT judgement now delivered

TA ruling in the Office of Fair Trading case against Foxtons is set to have major implications for the lettings industry.

Consumer bodies are celebrating the judgement as a major triumph for consumers. The case was brought by the OFT under the Unfair Terms in Consumer Contracts Regulations 1999.

The High Court has ruled that certain terms and conditions in Foxtons’ lettings contracts are unfair. The judge has also given his permission for this ruling to be applied across the lettings industry.

One industry source described today’s ruling as a ‘knock-out blow’.

However, crucially, the court has not said that the charging of all renewal fees in all circumstances is unfair.

But the court has said that important terms must be flagged up prominently and not hidden away in the small print.

In today’s judgement (Friday, July 10), Mr Justice Mann ruled that the following Foxtons terms are unfair:

* Requiring a landlord to pay substantial sums in commission, where a tenant continues to occupy the property after the initial fixed period of the tenancy has expired – even if Foxtons plays no part in persuading the tenant to stay, and does not collect the rent or manage the property

* Requiring a landlord to pay commission to Foxtons even after it had sold the property

* Allowing Foxtons to receive a full estate agents’ commission for sale of the property to a tenant.

The ruling, following a three-day hearing in April 2009, found that the charging of repeat renewal commission by Foxtons represented a ‘trap’ or a ‘time bomb’ for consumers.

The judge held that such important terms must be flagged prominently not just in the contract, but also in any sales literature and processes.

He said a typical consumer would be unlikely to read standard terms with a great degree of attention and would not expect important obligations to be tucked away in the small print and not specifically brought to their attention. He also found that Foxtons had used language in its contracts which is not ‘plain and intelligible’.

On the use of a term providing for sales commission to be payable on the sale of a property to a tenant, the judge said consumers would not merely be surprised but ‘astonished’ by the potentially large financial liability to Foxtons in relation to a transaction in which Foxtons played no material part.

The court looked at Foxtons’ letting contracts which typically applied an 11% renewal commission where a tenant remains in occupation of the property beyond the initial (usually one year) period, and a 2.5% commission payment in the event that a tenant  buys the property.

The OFT said it expects the letting industry to comply with this ruling, and will take the necessary steps to ensure this where appropriate.

OFT chief executive John Fingleton said: “This ruling sends out a clear and unambiguous message that businesses offering services need to ensure unexpected or surprising terms are not hidden away in small print. Contracts need to be written in clear and straightforward language with important provisions, particularly those which may disadvantage consumers as in this case, given prominence and actively brought to people’s attention.

“The OFT prefers to work with businesses to agree solutions where concerns are raised but we will not hesitate to take court action where this is not possible and especially where there is serious harm to consumers.”

In a statement, Foxtons put a brave face on the outcome. It said it  “welcomes the judgement and is pleased that the OFT has eventually made it clear that it is not its case that renewal commission is always unfair in contracts with consumer landlords.

“The judgement is consistent with that position and does not find that renewal commissions are always unfair.

 “The judge has stressed the importance of consumer landlords being made properly aware of how renewal commissions work in order for them to be acceptable. Foxtons is currently reviewing its terms and its marketing material to meet the concerns raised by the judge.”

Michael Brown, Foxtons CEO, said: “We are extremely pleased that this matter has finally been clarified in a way which is to the benefit of consumers and the industry.”