Foxtons cliffhanger as High Court is set to decide on renewal fees
A test case is about to be heard in the High Court today (27th April 2009) which will decide the legality of renewal fees – the charge made by letting agents to landlords when tenants stay on after their AST has come to an end.
The outcome of the challenge, by the OFT against Foxtons agents in London, will not only affect how future agency agreements are drawn up but also decide whether agents will be able to enforce renewal fees in current contracts with landlords.
The case will also have historic implications if the High Court rules that renewal fees are unfair, since landlords who have paid them over the last six years may test the legal waters further by demanding back their payments.
Some letting agents have already tried to bring cases at county court, pursuing payment from landlords who have declined to pay renewal fees. The parties have been told that these cases must await the outcome of the Foxtons decision.
The full case will be heard in the High Court, with up to three days set aside in the week beginning April 27.
Earlier this month the OFT won an argument, on appeal, that should the OFT win its case, then current contracts between letting agents and their landlords will be affected.
Foxtons had previously argued that if the court ruled that renewals fees are unfair, this should not affect current contracts whose terms and conditions include the right to charge renewal fees. Foxtons said that the ruling should affect only future tenancy agreements – in other words, those made after the court delivered its verdict.
Originally, the High Court accepted Foxtons’ arguments. But now the Court of Appeal has overturned the original High Court ruling.
The Appeal Court said that the Unfair Terms in Consumer Contract Regulations, on which the OFT is basing its case for seeking an injunction, are there to protect consumers.
The judgment said that “traders should not have the freedom to pursue existing customers without restriction, in correspondence or by litigation, in order to enforce contractual terms that have been found to be unfair”.
The full High Court hearing later this month will hinge on the fairness, or otherwise, of the terms and conditions in Foxtons’ contracts.
These terms, on which the OFT has sought an injunction, “can potentially require landlords to pay Foxtons substantial sums in commission, where a tenant continues to occupy the landlord’s property after the initial fixed period of the tenancy has expired when Foxtons plays no part in persuading the tenant to stay, and no longer collects the rent or manages the property,” said the OFT in a statement.
The OFT has also objected to Foxtons’ terms that require a landlord to pay these sums after they have sold the property. Foxtons contends that such terms with landlords are not unfair.
The OFT originally launched its action in February 2008. The case has been a major talking point among landlords who have always felt renewal fees were a charge levied by agents for doing nothing.
However, letting agents have argued that courts cannot take issue with clear contracts entered into by both parties.
But the OFT says that under the Unfair Terms in Consumer Contract Regulations, a consumer is not bound by a standard term in a contract if that term is unfair, and that only a court can decide whether a term is unfair.
The result of the High Court decision will be reported on the RLA News site.