In an important decision, the High Court has ruled that various commission clauses in Foxtons’ contracts with residential Ls are unenforceable. It is reckoned that there are around 15,000 letting agents using similar conditions, and accordingly this decision is important for the whole residential lettings industry. The end result is that many of these agents will face claims for refunds.

The case was brought by the OFT in respect of two types of commission clauses:

these entitled Foxtons to charge commission if T renewed the lease (even if Foxtons had no involvement in the renewal);

sales commission: this entitled Foxtons to a commission if L sold the property to T.

The High Court decided that renewal commissions could be fair in the right circumstances, whereas sales commissions were patently unfair (and it is difficult to imagine any situation in which such a provision would be upheld). The end result, therefore, is that renewal commissions can be valid – although the reality is that most letting agents’ terms will not comply with the necessary requirements.

Bear in mind that all of this only applies to ‘consumer’ Ls, with the litigation being on the basis that the Ls were consumers who were letting properties outside the scope of a business, trade or profession. It is only if a contract is with a ‘consumer’ that the Unfair Terms and Consumer Contract Regs 1999 can apply. Needless to say, letting agents will doubtless argue that many Ls are not ‘consumers’ because there is a business basis to the letting.

As far as lettings by ‘consumer’ Ls are concerned, much will depend on the explanation given by the agent to L before the contract was signed. The object of the Regs is to ensure that commercial organisations do not force onerous terms on the consumer, especially if they do not flag them up and explain them. If a consumer is given a proper explanation, and an opportunity to negotiate changes, it is unlikely that the court will hold a provision to be unenforceable. It follows from this that, going forward, all terms should be written in plain English so there is no doubt about what they mean, and how and when they apply. It is also important to ensure that the terms are thoroughly explained – the clearer the explanation and wording, the less likely it is that a court will conclude that a consumer has been forced into agreeing to terms that he or she did not understand. Needless to say, terms hidden in small print, or in technical language, are unlikely to pass this test.

In summary, therefore, letting agents can charge renewal commissions (even when they are not involved in the renewal negotiations) provided that (a) L is not a ‘consumer’ or (b) L is a ‘consumer’, but the clause, and its effects, were clearly communicated and explained to L before the contract was signed. In practice, of course, most existing contracts with ‘consumer’ Ls are unlikely to meet this test; the end result is that those provisions will be unenforceable and thus the Ls will be able to sue to recover commissions already paid. See article on OFT v Foxtons [2009] EWHC 1681 (Ch) (acces free at www.practicalconveyancing.co.uk) in [2009] 234 PLJ 13.