Last year, the High Court ruled that various commission clauses in Foxtons’ contracts with residential Ls were unenforceable. This was an important decision, since it was reckoned that there were some 15,000 letting agents using similar conditions. Accordingly, many expected a large number of claims for refunds against those agents.

In particular, the High Court outlawed a commission clause that entitled Foxtons to an estate agent’s commission if L sold the rented property to T (even if Foxtons was not involved in the sale). In the High Court’s view, such commission arrangements were patently ‘unfair terms’ under the Unfair Terms and Consumer Contract Regs 1999.

The High Court also gave its view on ‘renewal commissions’ (entitling Foxtons to charge commission if T renewed the letting, even if Foxtons had no involvement in that renewal). Such clauses would only be valid if the were clearly communicated and explained to the client, L, before the contract was signed.

Clearly, the effect of the High Court decision is that Ls will not have to pay those charges in future, since they are unenforceable (Reg 8(1) says that any term that is ‘unfair’ is unenforceable). But, Reg 8(2) makes it clear that the fact that a single clause is unenforceable does not make the whole contract non-binding, provided it can still operate shorn of that unfair clause. Accordingly, the fact that one provision in the contract is unfair will not make the whole contract void – it merely makes certain clauses unenforceable. As a matter of contract law, where a contract is unenforceable (and presumably where it contains unenforceable terms), there is no right to recover moneys paid – unless a total failure of consideration can be shown. If a degree of service has been provided by the agent, then that is unlikely to be the case. Accordingly, while a declaration of unfairness will prevent further moneys being claimed in reliance on that clause, it will not necessarily give rise to a right to recover money previously paid; to achieve that, it would be necessary to show that the entire contract was unfair and that there had been a total failure of consideration. If that logic is correct (which it seems to be) then many of the refund claims will fail. Source: (http://blog.painsmith.co.uk).

One other point made by Pain Smith is about who qualifies as a ‘consumer’ under the 1999 Regs. Needless to say, the Regs only apply to ‘consumers’, and thus some have argued that Ls (letting out as a taxable business) will not be ‘consumers’ and thus the 1999 Regs will not apply. However, that seems to be incorrect; contracts between private Ls and agents will generally be consumer contracts, and owning a number of properties does not stop an L becoming a consumer. An L will only not be a ‘consumer’ if he is genuinely operating his properties as his primary income source (which does not apply to many residential Ls). Thus, in most instances, the 1999 Regs will apply.