In a potentially ground breaking case, which could save landlords thousands of pounds, the estate agents Foxtons are being taken to court over the unfair contractual terms in their standard lettings agreements.

Cheshire based law firm R James Hutcheon Solicitors, operators of the Rent Management Service, are defending a claim on behalf of a landlord brought by Foxtons for their commission on the sale of rented property to a tenant.   A counter claim has also been rasised by the landlord for the return of the renewal commissions paid to Foxtons whilst the tenant let the property.

In the small print contained in Foxtons terms and conditions, the landlord is contractually obligated to pay a commission of 3% of the sale price if the tenant (initially introduced to the landlord by Foxtons) at a later time purchases the property from the landlord.

Handling the case on behalf of their landlord client, the Principal Solicitor Ronnie Hutcheon believes Foxtons along with other London based letting agents operate unfair and unreasonable contractual terms in many cases, he says:

“…The landlord has not anticipated the commission when he sells the property to his tenant and is astonished and completely surprised when he receives a large bill from Foxtons. It is completely fortuitous that the tenant Foxtons introduced to the property decides at a later time decides to buy the it.  It is undeserving that a clause of this nature should be allowed to stand.”

Mr Ronnie Hutcheon further explains:

“Had Foxtons and other letting agents undertaken work to introduced prospective buyers to the property then landlords are happy to pay their reasonable fees.  But in this case, like may others, they have not done anything to market and sell the property.  I don’t blame landlords making a stand…”

In the court action, the Landlord is defending commissions payable to Foxtons amounting to a staggering £18,000 because he sold the property to the tenant.

Test Case

With respect to unfair contract terms, the Office of Fair Trading is currently in the process of taking Foxtons to the High Court and a preliminary hearing has already been heard. The outcome of the High Court hearing is likely to prove decisive. However despite this test case it is clear that Foxtons are still taking action against their landlord clients.

What if Foxtons are taking action now?

Despite this test case it is clear that Foxtons are still taking action against their landlord clients. Should this occur Mr Ronnie Hutcheon says:

“Faced with a county court action it is important that a landlord files a defence quickly to ensure that a judgement is not registered against him to avoid an adverse credit rating and to defend the action.  If the landlord has paid renewal fees in the past, he should put in a counter claim for the return of all the fees dated back to 6 years.  The landlord should then ask the court to stay the case pending the OFT test case.”

Landlords can rely upon a recent case which help landlords was decided this year called Foxtons Limited v Palkey & Bicknell & Another 2008.  In that case it was decided that as Foxtons were not the effective cause of the sale (they did not directly introduce the purchaser to the property).  Instead, they had simply been employed as letting agents on behalf of the landlord in order to find a tenant.

There is also statutory force under Regulation 5 of the Unfair Terms and Consumer Contract Regulations 1999, which landlords can rely on which provides:

 “A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer”.

With this in mind, as the transaction involved Foxtons’ Mr Ronnie Hutcheon will be argue for his landlord clients that the standard terms and conditions cause a significant imbalance to the detriment to the landlord consumer.  The landlord are for the most part unaware of the clause or do not have any bargaining power to negate the alleged unfair terms and as such the court may find Regulation 5 to have been contravened.

To speak with Hutcheon Solicitors about your unfair renewal fee problem or other letting agent issue please contact us on 0800 083 0626 or email us at contact us by clicking here.

The Royal Institution of Chartered Surveyors (Rics) says the slump in house sales is forcing many more people to become either landlords or tenants.
In July, Rics members saw new instructions from landlords rise at their fastest rate on record. But potential tenants are outweighing would-be landlords, and helping to push up rents in many areas of the UK. The international credit crunch and the subsequent drying up of finance for new mortgages has produced the sharpest housing market slump seen since World War II.

The number of house sales has already fallen by 50% in the past year and with mortgage approvals already down by 70% it looks likely that sales will fall even further in the coming months. "Frustrated vendors have been placing their property in the market to let as they have been unable to agree sales due to a lack of demand in the housing market," said Rics. "Many would-be buyers have been forced to rent as the route to mortgage finance has been blocked," it added.

According to the Rics survey of residential lettings, 43% more of its members reported a rise in landlord instructions than saw a fall during the three months to July. That was up from a positive balance of 30% in the previous quarter. Actual lettings also went up strongly, with 37% more surveyors reporting a rise than a fall in lettings to tenants. Meanwhile 43% more surveyors reported a rise than a fall in the local demand for rented houses, compared with a balance of 34% in the demand for flats. Many potential buyers, finding it hard to get a mortgage, are now renting rather than buying new homes, with family houses especially in demand.

The knock-on effect has been that rents have continued to rise, even though house prices are falling. The Rics findings contradict those of some other recent rental surveys. These have suggested that in fact new properties coming onto the rental market have outnumbered the increase in potential tenants. The property firm Knight Frank has predicted that rents in central London may fall by up to 5% this year because of an oversupply of "forced landlords".

Landlords are now more inclined to keep hold of their rental properties, the Rics survey found, with only 2.1% opting to sell when their tenants' leases expired, the lowest proportion on record. "Established investors have been reaping the benefits of the housing downturn for sometime and will continue to do so in the short term," said Rics. "However, ever increasing supply could have an impact on rental growth as tenant options increase," it pointed out. Demand from prospective tenants appears to be strongest in the North of England, while new instructions from landlords are strongest in the Midlands and Wales,

"Demand for rented accommodation is strong," said Malcolm Parker of Joplings estate agents in Thirsk. "A major factor in recent weeks is that many unsold houses are being withdrawn from sale and offered for rental instead," he added. "There is an oversupply of rental property in the market due to property owners, unable to sell their properties, attempting to let them," said Shoulers estate agents in Melton Mowbray. "We see this trend continuing," they warned.

The research also found that over 50 percent of tenants are increasingly concerned about being able to afford their rent going forward.

Axa says this will potentially add further misery to the mortgage market as buy-to-let owners are left financially strapped through tenants failing to pay the rent.

The insurer also found that 95 percent of those in privately rented accommodation have no kind of income protection to help out if their financial situation was to alter through losing their job.

Axa managing director of intermediary personal lines Mike Keating says: "Our research shows that over a third of people privately renting are doing so because they can't get a mortgage at the moment. On the surface of it, this looks like the rental market should be buoyant. But if you consider that many of those renting may be struggling to make ends meet it's certainly not all good news for buy-to-let owners.

"The cost of living is rising rapidly and average earnings are not keeping pace. And while rental rates appear to have dropped marginally in the last few months it's going to continue to be tough for many tenants."

The OFT is drawing consumers' attention to a recent Court of Appeal ruling that affects 'sole agency' contracts with estate agents.

The recent court case ruled that estate agents cannot claim their commission under a 'sole agency' agreement unless they can show that they have introduced the buyer to the purchase, and not just to the property.

In the case of Foxtons v Bicknell in April this year, the Court of Appeal decided that Foxtons was not entitled to a £20,000 fee after a buyer it had originally introduced to a property but who decided not to purchase the property at the time, then went on to buy the property at a later date through another agent.

The court decided that 'introduced' meant introducing a buyer to the 'purchase' and not just to the 'property'. In this particular case, the buyer had made it clear to Foxtons that she was not interested at that time in buying the property and therefore Foxtons could not claim their fee.

Mike Haley, OFT Head of Consumer Protection, said:

'It remains the case that sellers who sign a 'sole agency' agreement with an estate agent could be liable to pay the agent their fee even if another estate agent ends up selling the property. This Court of Appeal decision helps house sellers and estate agents understand more about the circumstances where this might or might not be the case.'

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Foxtons To Be Sued By Hutcheon Solicitors

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June 17 (Bloomberg) -- Managers of apartment blocks in Scotland became the third aspect of the U.K. real-estate market to be probed by the nation's antitrust regulator in the last five months.

The Office of Fair Trading said it's investigating the competitiveness of the property managers, known as factors in Scotland, after a complaint from the Scottish Consumer Council. The London-based regulator will look at how factors are chosen and the services they deliver, as well as the redress available to their customers.

"This study will take a detailed look at Scottish property management services, consider how well they are working for homeowners, and take a view on any recommendations which might bring positive outcomes for consumers,'' said Heather Clayton, the OFT's senior director of infrastructure, in an e-mailed statement.

The property market is under increased scrutiny as regulators examine the impact of the credit crunch on consumers. The Justice Ministry said in May that U.K. home-repossession claims by mortgage lenders rose 16 percent from a year ago in the first quarter, the steepest rise since the early 1990s.

There are 330,000 owner-occupied apartments in Scotland and an additional 85,000 rented, according to OFT statistics. The majority of the occupants deal with a private property manager. The average annual fee paid to factors is £100 pounds, said OFT spokesman Jonathan Marciano. They do work such as maintenance of stairwells and roofs.

House Prices

The Property Managers' Association Scotland Ltd., whose members manage as many as 150,000 properties, said it supports proposals to introduce regulation or accreditation.

"PMAS does not believe that choice is restricted given the ability of owners to terminate appointments,'' said Jamie Millar, the association's secretary, in an e-mailed statement. He said the association received approximately 200 complaints each year, ``most of which are mediated.''

House prices in Scotland are holding up better than elsewhere in the U.K. as homeowners are less leveraged. Prices at April 30 are 11.6 percent higher than a year earlier, according to Lloyds TSB Scotland, with values rising 1 percent in the six months to April 30. Donald MacRae, chief economist at Lloyds TSB Scotland, said he thinks prices won't fall in 2008.

The OFT's former head, Bryan Carsberg, said in a separate report released yesterday that real-estate brokers, renting agents and residential property managers should be licensed and hold special qualifications.

"I'm not surprised the OFT is doing this now,'' said Nigel Parr, head of competition at London law firm Ashurst LLP. ``Carsberg's report has just come out, signaling a need for more regulation, and the last time the OFT looked at estate agents in general it applied only to England and Wales.''

OFT Foxtons Court Case

The OFT's study, which will be issued by the end of the year, comes as the regulator is scrutinizing the U.K. sale and lease-back market, where homeowners sell their property at a discount on the condition they can remain as tenants. It also sued Foxtons, a real-estate broker, over rental contracts that require landlords to pay commissions even after the expiration of an initial lease agreement. The case is expected to reach court next month.

The regulator investigated real-estate brokers across England and Wales in 2004. Scotland, where the OFT opened an office last year, has different property laws. It doesn't have the leasehold system found in England and Wales, where apartments are leased to homeowners on long-term contracts that can run as long as 120 years.

"The SCC has expressed concerns about the current system of Scottish property factoring and welcomes the OFT's announcement,'' said Douglas Sinclair, chairman of the Scottish Consumer Council, in an e-mailed statement.

OFT market studies are general investigations into an industry it suspects may be uncompetitive. They can lead to formal probes, where the regulator pursues named parties.