Agency – Commission – Estate agents – Fariness – Landlords

Office of Fair Trading v Foxtons Ltd: Ch D (Mann J): 10 July 2009

The claimant (OFT) sought declaratory relief in respect of the operation of alleged unfair terms in contracts between the defendant letting agent (F) and various landlords (L). For the purposes of the Unfair Terms in Consumer Contracts Regulations 1999, F was the supplier and L were the consumers.

L had all opted for a letting-only service to help them find a tenant, rather than a full property-management service. F’s contracting terms provided for a commission payment for the introduction of a tenant. The terms also stipulated, in essence, that commission would continue to be payable where tenants renewed or extended their tenancy or where a new tenant took over who was connected in some way with the previous tenant.

Furthermore, the terms stated that commission would be payable where tenants subsequently purchased the property from L (sales commission) and where L assigned their rights to a third party (third-party renewal commission). After L made complaints that the commission terms were unfair and involved the OFT, F amended its terms to some degree. However, the question of fairness of the old terms and of some of the new terms still remained. OFT submitted that (1) F’s terms and conditions used language that was not ‘plain and intelligible’ as required by article 4(2) of the Council Directive 93/13 and regulation 6(2) and 7 of the 1999 regulations; (2) the provisions relating to renewal commission were not part of the main subject matter of the contract for the purposes of regulation 6(2) and could not escape an assessment of fairness on that basis; (3) the provisions relating to sales commission and third-party renewal commission were unfair.

Held: (1) In order to determine whether F’s terms and conditions of business were expressed in plain and intelligible language, it was necessary to define the typical consumer. It was not in dispute that ‘professional’ or ‘commercial’ landlords doing business with F were not consumers for the purposes of the regulations. However, the issues raised in the instant case were significant for many consumer landlords who had acquired one or two properties as an alternative to pensions and savings. The typical consumer was to be defined on an analogous footing to that on which the court approached the attributes of the reasonable man and the description in Office of Fair Trading v Abbey National Plc [2009] EWCA Civ 116, [2009] 2 WLR 1286 was to be adopted, Abbey National applied. F’s attempts at re-wording the clause had introduced a fresh lack of clarity.

(2) Regulation 6(2) could not be approached purely as a matter of common law construction of the contract. Although the written terms of the contract were the starting point, it was necessary to establish on a wider level what the substance of the agreement was, rather than focus on the precise written terms. It was also necessary to consider how the matter would be perceived by the typical consumer and the supplier, Abbey National applied. Therefore if the renewal commission was to be treated as part of the core bargain, the typical consumer would have to consider it so as well as the supplier. On the facts, the obligation to pay renewal commission had not been part of the core bargain between the parties, since a typical consumer would have approached F for help in finding a tenant for an initial term of engagement and the prospect of a renewal would have been a subsidiary matter receiving little focus at that time. Furthermore, the provision for renewal commission was hidden away in the document and played no part in the activities under focus, namely those of finding a tenant. A re-wording of the clause to expressly make the renewals commission part of the overall contract price or core bargain did not alter the real position. It was not to say that renewal commission was always unfair to landlords per se; it might be possible to engineer a situation where the renewal commission element became part of the core bargain if there was real negotiation between the parties from the outset and clear disclosure, if not active flagging-up, of the term, but that had not happened in the instant case. On the facts, parts of the clause providing for renewal commission were too vague to be classed as ‘plain and intelligible’. Severance of the clause was neither necessary nor appropriate, Abbey National applied. Therefore, even if the renewal commission was found to have been part of the core bargain between the parties, it did not escape a fairness inquiry.

(3) A fairness inquiry revealed that all the relevant provisions were unfair for the purposes of the regulations, Director General of Fair Trading v First National Bank Plc [2001] UKHL 52, [2002] 1 AC 481 applied. The relief to be granted was to be determined at a further hearing.

Judgment for claimant.

Nicholas Green QC, Helen Davies QC (instructed by in-house solicitor) for the claimant; Michael Kent QC, Andrew Davis (instructed by Mishcon de Reya) for the defendant.