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LettingFocus

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Foxtons Loses Unfair Letting Renewal Fees Case says Letting Focus

It is a bad day for Foxtons and other letting agents who have been for years charging excessive amounts for carrying out renewals to tenancy agreements when there was often no work involved at all.
The OFT went to the High Court to fight what it said were unfair terms in Foxtons contracts.
This case has dragged on for years and in today’s ruling, the Judge accepted that all the terms that the OFT brought before the court were unfair.
These include Foxtons terms that required 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 played no part in persuading the tenant to stay, and does not collect the rent or even manage the property.
Also ruled unfair were terms requiring a landlord to pay commission to Foxtons even after it had sold the property and allowing them to receive a full estate agents’ commission for sale of the property to a tenant.
The ruling said that charging repeat renewal commission by Foxtons represented a “trap” and that such important terms must be flagged prominently not just in the contract, but also in any sales literature and processes.
I know from my own experience that many non professional landlords do not read the standard terms with any degree of attention and don’t expect important obligations to be tucked away in the small print.
But they often are and were very rarely bought to their attention.
The case makes clear that contracts should be written in clear and straightforward language with important provisions, particularly those which may disadvantage landlords, as in this case, given prominence and actively brought to people’s attention.
The OFT has said that it expects the letting industry to comply with this ruling and will take the necessary steps to ensure this where appropriate.
If you feel you have been “done” over the years by a letting agency using such tactics you should start by writing them a formal letter asking for your money back.

SOME LETTING AGENTS WILL GO OUT OF BUSINESS
I applaud the decision which must leave a lot of letting agents quaking tonight as they can surely expect the claims for repayment to roll in.
But you’ll have to make your claim first – these letting agents ain’t going to rush to send you a cheque - and I’m guessing many letting agents won’t pay up too easily either. (I’m no lawyer but I imagine it will certainly help if you have copies of the documents you had when you signed up to the contract)
Other letting agents will be pushed over the edge by this and go out of business taking some landlords deposits with them (but that's another matter dealt with in other posts on this blog) .

SNEAKY FEES
Hiding letting renewal fees in the way some letting agents did was a typically sneaky property industry thing to do that is sadly standard stuff for the whole financial services sector.
But why did letting agencies do it?
Well, they did it for so long because they could and because many novice landlords were eother too lazy or too busy to read all the small print in the contracts.
Maybe they were tempted because many landlords were too mean to pay a decent up front fee for an agent’s service.
I have some sympathy with them on this one because I have on occasion looked after properties for people overseas and I was frequently astounded by some amateur landlords’ meanness.
I frequently found meanness about getting things fixed for their tenants and about spending any money at all on their properties.
I can well imagine that these were the type of people who would argue over paying a decent rate for an agent to find them a tenant.
No wonder some letting agents went all sneaky and opted to charge these hidden repeat renewal fees that have now been outlawed.
For some it was the only way they could make a living (though in Foxtons and other big London letting agencies it was probably just down to a rapacious desire to squeeze every buck possible out of amateur landlords who were too huried to read the small print.)

EXPECT LETTING AGENCY FEES TO GO UP
How will this effect things going forward?
Well as a result of this decision, I fully expect up-front agency fees for finding tenant to go up and also for more landlords to opt let direct using the various portals.

NOT ALL LETTING AGENTS CHARGED SNEAKY RENEWAL FEES
finally it must be said that charging renewal fees and other sneaky fees was not practiced by all letting agents, of course. Outside London and the South East the practice was quite rare - with most agents only charging a flat rate one-off fee to find a tenant.
ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson of LettingFocus.com - the landlord experts. Read Property Articles.
I’m the author of “Successful Property Letting” which for the last 3 years has been the UK’s top selling property book - buy Property Investment Book. The new edition is for accidental and experienced landlords and is fully up to date with all the recent changes to tenancy deposit schemes, landlord registration and capital gains taxes.
I’m a property expert and property speaker - and I run the well known property blog that you are reading now.
I contribute to newspapers and a host of property websites, write a number of columns in the press and I provide general advice on property letting to anyone looking to buy property for themselves or to let.
What’s unique about lettingfocus.com is that we offer independent unbiased advice on letting property because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, agent or bridging loan financier.
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Are Letting Agency Renewal Fees Fair asks David Lawrenson of Letting Focus. We look at the Foxtons case.

A reader of this blog recently contacted me with a query which I’m seeing all too often right now. She had rented out a flat for the last four years to a tenant who was found by a big London Letting Agency. The landlord managed the tenancy herself.
The landlady paid the agent 10% for the first year of the tenancy and unfortunately had signed a contract to pay 8% for each year of renewal thereafter. (As you will know from other blogs posts my advice is to pay a generous up front fee and strike out any clauses requiring you to pay renewal fees where the tenancy is simply extended to become a “monthly periodic” tenancy because in these cases the agent does no real work to extend the tenancy!)
In this particular case, the tenant is now buying the flat – a result of a private agreement between the landlady and the tenant.
However, when the landlady informed the agent of this, they pointed out a clause in the tenancy contract which says, “In the event that a tenant or a third party connected with the tenant introduced by us, subsequently purchases the property, we will be entitled to a fee of 1.5% of the purchase price plus VAT.”
The landlady wanted to know if there was any way she could get out of paying this fee, or at least some of it.
She was shocked that it’s so much when they have done nothing apart from securing the tenant four years ago.

LITIGATION
The answer lies in litigation which is ongoing at present.
In the case of Foxtons Ltd v Pelkey Bicknell this year, the Court of Appeal said that it is not sufficient for an agent to introduce a purchaser to earn a sales commission. The agent has to be the effective cause of the sale.
The Office of Fair Trading (OFT) is also challenging, in the High Court, the agency, Foxtons' standard terms and conditions for letting properties.
The OFT believes that the Unfair Terms in Consumer Contract Regulations 1999 mean that some charges made by the agent are actually unlawful.
The case mainly involves the right for the agent to claim a renewal fee from the landlord if a tenant renews at end of the original letting period. But the challenge also covers commissions payable where a tenant buys the property.
This case seems to have been pending for ages and the outcome of the trial and any appeals may not be known for some time yet.
Some solicitors in the north west of England have issued county court claims for landlords for repayment of fees paid to agents in similar cases.
It may also be possible to issue proceedings in court for repayment of cash previously paid unlawfully on these grounds and claim interest from the agent too.
However, it may be better to wait until the result of the OFT case is known and don’t forget that you have up to six years to issue any claim in court.
According to my friend and legal expert Tessa Shepperson at the website LandlordLaw, another option could be to draw the letting agency’s attention to the Foxtons case and offer to pay any monies in dispute into a separate interest paying account to show good faith. Then, if Foxtons wins the test case then the money would then be paid out to them. If they lose, you get to keep it.
Please note we are not lawyers and this is a rough guide of the situation only and should not be relied on as definitive advice. We advise you to always take legal advice from a solicitor experienced in these matters.
Click here to read another short article by me about letting agency fees

ABOUT LETTINGFOCUS.COM and DAVID LAWRENSON
I’m David Lawrenson of LettingFocus.com - the landlord experts.
I’m the author of “Successful Property Letting” which for the last 3 years has been the UK’s top selling property title - Buy Successful Property Letting - How to Make Money in Buy to Let.
The new edition is fully up to date with all the recent changes to tenancy deposit schemes, HMOs, licensing, capital gains taxes and it has new sections on sale and rent back.
I’m an expert freelance property writer, property speaker and a well known buy to let blogger
I contribute to newspapers and a host of property websites, write a number of columns in the press and I provide general property letting advice for anyone looking to buy property for themselves or to let out.
In my work as a consultant I help private individuals with any aspect of buying property or buy to let. What’s unique about lettingfocus.com is that we are independent property mentors because unlike most people in the buy to let and property “advice” business we are not linked to a property company, developer, agent or bridging loan financier and do not receive commissions from any of these sources.
We simply give one to one unbiased advice and are often asked to evaluate other property investments.
In my corporate consulting role, I also advise banks, building societies, housing associations and web portals with their buy to let and property products and services.
You can read more of my blog & find details of my networking, advice and property training programme at my website.Copyright: David Lawrenson 2008. This blog is updated once a week. WANT TO BE KEPT UPDATED WITH OUR LATEST BLOGS?
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