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Renewal commissions in letting agreements

A recap on the decision in OFT v Foxtons Ltd.

Back in 2009, the Office of Fair Trading brought an action against Foxtons in respect of various provisions in the terms and conditions for their letting-only service relating to the payment of commissions. Specifically, the OFT sought a declaration that these terms (payment of renewal commissions and sale commissions where Foxtons played no part in the sale) were unfair pursuant to the Unfair Terms in Consumer Contracts Regulations (1999) (‘the Regulations’).

Mr Justice Mann, the judge presiding over the case, made it clear that he was not being asked to decide whether all clauses relating to renewal commissions were unfair – just those before him. However, the Judge did lay down some guidelines to help analyse on a case-by-case basis whether a particular renewal clause was unfair or not.

The Judge’s test:

  1. The landlord must be a consumer within the meaning of the Regulations – a landlord with several properties is unlikely to be afforded any protection. However, an amateur landlord with one or two properties is likely to pass this hurdle.
  2. Does the renewal commission forms part of the core bargain or not – the landlord needs to be fully aware of the term at the beginning (it is not a subsidiary matter receiving little focus at the time) and be able to conduct a real negotiation on this provision. In addition, there needs to be clear disclosure – if the term is tucked away then it lends credence to the suggestion that it is not part of the core bargain.
  3. The clause needs to be intelligible – if the clause is cannot be understood or the meaning is not clear, then it will be interpreted in favour of the consumer. If the clause is clear and understandable, the Regulations will not apply to it.

If all of these requirements are met, the clause will be subject to scrutiny by a Court and can potentially be found to be unfair. In deciding on the fairness of a term, the Court will consider the non-exhaustive list of provisions found in the second schedule of the Regulations.

In the Foxtons case, the Judge found the renewal commission terms to be clearly unfair for several reasons, the main ones being:

  • There was a significant imbalance between the parties;
  • The service supplied did not correspond with the amount being paid;
  • The clause was onerous due to the length of time it operated for;
  • Foxtons did not have to do very much work at all (if anything) to earn the commission; and
  • The wording of the clause was incomprehensible and the clause itself was hidden away in the terms and conditions.

The Foxtons decision was subsequently followed by a District Judge in the matter of Chesterton Global Limited v Finney (2010), an unreported County Court case. The Defendant, who was being sued for the payment of renewal commission, was found to have the protection of the Regulations as he only owned the one property, the commission clause did not form part of the core bargain and the term providing for the payment of commission was not suitably clear. The Judge found that the term was unfair for several reasons. These reasons were similar to the ones given in Foxtons, but also included the fact that the subject terms had not been brought to the Defendant’s attention and appeared on page 6, rather than in the section where the Defendant had to select the level of service required. In addition to finding that the terms were unfair, the Judge allowed the Defendant’s counterclaim requiring commissions already paid to be returned.

Conclusion

These decisions make it clear that agents need to be aware – not only could they find that their terms and conditions are unfair, and therefore not binding, but also they could find themselves having to pay back commissions previously collected from their landlords. However, it is important to note that not all renewal commission clauses are automatically unfair. Each case will be decided on its merits.


This article is for information purposes only and is not legal advice. It should not be acted or relied upon and legal advice should be sought before applying any of the information in this article to any facts or circumstances.

For more information, or to discuss any issues arising from this article, please do not hesitate to contact us on +44 (0)20 8909 0400 or by email at info@millschody.com.

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