OFT clamp down on estate agents' commission
Introduction
The Office of Fair Trading ("OFT") recently announced that it has issued High Court proceedings against estate agents, Foxtons, challenging its residential lettings terms. If successful, estate agents can expect a dramatic overhaul of the way in which they are able to charge commission on residential lettings.
The OFT, the regulatory body responsible for taking legal action to prevent the use of potentially unfair terms with consumers, sprung into action following complaints made against Foxtons by consumers. The terms in question require landlords to pay substantial amounts of commission to Foxtons:
- where a tenant continues to occupy the property after the fixed tenancy period has expired, even if Foxtons has played no part in persuading the tenant to stay or no longer manages the property; and
- when the landlord sells the property to the tenant, even where Foxtons has played no part in negotiating the sale.
The OFT maintains that the terms breach the Unfair Terms in Consumer Contract Regulations 1999 (the "Regulations"), legislation that is reflected across Europe. The Regulations provide that a term is unfair if it has not been individually negotiated (i.e. it forms part of the seller or supplier's standard terms) and it causes a significant imbalance in the parties' rights and obligations to the detriment of the customer. The Regulations also apply to contracts made business to business which are on the standard terms of the seller/supplier.
If the High Court finds that the terms are unfair, they will not be binding and Foxtons will be forced to amend them.
Foxtons insists that the terms are not unfair and is continuing to use them pending the outcome of the proceedings.
Foxtons may well be standing its ground for the moment, but letting agents would be wise to consider whether their terms could be open to attack irrespective of the eventual outcome of this case. In a recent press release, the OFT sent out a warning to all letting agents spelling out its intentions to carry out an industry-wide investigation and to pursue any letting agent using similar terms if the action is successful.
With an estimated 15,000 letting agency businesses currently operating in the UK, this might seem a tall order, but fairness to consumers is currently a hot topic and the OFT is keeping a careful watch. Letting agents are not alone: high street banks have already, very publicly, come under scrutiny in relation to overdraft charges and legal proceedings are currently underway.
The OFT takes complaints made to it by consumers extremely seriously and with the imminent implementation of the Consumer Protection from Unfair Trading Practices Regulations 2007, which will protect consumers from aggressive and other unfair sales practices, a major shake up across all sectors is expected.
Ashfords is regulated by the Solicitors Regulation Authority. The information in this article is intended to be general information about English law only and not comprehensive. It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.
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