19/10    22 February 2010

The OFT has secured a final High Court order against Foxtons Ltd preventing it from using certain terms concerning sales and commissions in its letting agreements with consumer landlords.

More widely, the OFT is also writing to a number of letting agents and key industry bodies drawing their attention to the Order and making clear that letting agents are expected to comply with the law as set out in this ruling. The OFT will take necessary steps to ensure compliance across the wider lettings agent industry where appropriate.

This Order against Foxtons follows a landmark judgment in the High Court in July 2009 in proceedings brought by the OFT under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs). By its judgment the court accepted that all the terms the OFT complained of were unfair. Foxtons had until 29 January 2010 to lodge an appeal but did not do so.

The High Court ruled that Foxtons' renewal commission terms were not transparent to consumers, so that they represented a trap and were therefore unfair, and ordered that Foxtons may not rely on these terms except where they remain instructed to manage the property.

The Order also declared that the following terms are unfair, not binding, and may not be used or relied upon in contracts with consumer landlords.

• Terms which require landlords to pay renewal commission to Foxtons after the sale of their property to a third party because the original tenant remains in occupation.
  
• Terms which require landlords to pay a sales commission to Foxtons in the event they sell the property to their tenant.

Foxtons has made significant changes to its standard contract with landlords as a result of OFT intervention, including making the liability to pay renewal commission more transparent, reducing the commission payable on renewal, and limiting it to two renewals.

Commission is also now only payable where the original tenant remains in occupation, and the landlord will get a pro rata refund where the tenant leaves the property before the date set out in his lease. The OFT will continue to monitor whether this contract operates fairly under the UTCCRs.

Jason Freeman, Legal Director of the OFT's Consumer Group said:

'We welcome the finality brought by this Order, and the court's declaration that the terms we challenged are indeed unfair.

'This case, and the changes Foxtons has now made, sends a wider message to letting agents and businesses in general that important terms, particularly those which may disadvantage consumers, must be clear, prominent and actively brought to people's attention. Consumers should not be presented with a surprise bill for services they have not consciously agreed to.'

NOTES

1. The OFT commenced High Court proceedings against Foxtons in February 2008. The court's judgment on fairness of terms was given on 10 July 2009. See press release 83-09 and the Foxtons webpage. Following that judgment, the court made a further order on 17 December 2009 setting out the injunctions which should be granted in consequence against Foxtons.
   
2. You can also find a copy of the Court of Appeal ruling on another issue which arose during this case on the OFT website here. This held that the OFT is empowered to stop traders from enforcing unfair terms in existing contracts with consumers.
   
3. Renewal commission terms typically require a consumer to pay commission to the agent after the initial fixed period of the tenancy has expired and the tenant remains in occupation.
   
4. The UTCCRs apply to standard contract terms with consumers. The UTCCRs protect consumers against unfair standard terms in contracts they make with traders. The OFT, and certain other qualifying bodies (such as local authority Trading Standards, national regulatory bodies, and Which?) can take legal action to prevent the use of potentially unfair terms. A term is likely to be considered unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations under the contract, to the detriment of consumers. The regulations say that a consumer is not bound by a standard term in a contract with a trader if that term is unfair. Ultimately, only a court can decide whether a term is unfair.
   
5. The OFT has recently launched a market study looking at Consumer Understanding of Contracts to look into the extent to which consumers understand complex products and pricing. See press release 10-10.