A judge has ruled that a firm of letting agents was not entitled to charge a renewal fee in the seventh year of a tenancy because the charge was not stated on the front page of the contract with the landlords.
However, the judge rejected a claim for previous renewal fees to be repaid by the agent.
The case was heard on November 25 at Willesden County Court, London.
The agents had made it clear in the contract with the landlords that they would charge a renewal fee.
Details of the firm’s 6.5% renewals fee and its terms were included in documents the landlords signed at the outset of the tenancy.
The figure was £1,123 at 6.5% (including VAT) of the annual rent of £14,040. A 7% commission had been paid on the initial letting, with the 6.5% charge on all subsequent renewals.
However, in the seventh-year renewal the landlords dealt directly with the tenant, negotiating the rent directly with them and completing a standard form of AST directly with them.
Solicitor for the landlords, John Miller of Miller Clayton, said that the agents did not manage the property or collect the rent and never carried out any work regarding the latest renewal.
Despite this the agents claimed they were due the commission because their fees, terms and conditions entitled them to it, whether or not they carried out any work.
Paragraph 8 of their fees document included the clause: “Renewal commission becomes due in full whether a renewal agreement is signed or not when all or one of the original tenants remains in occupation. Commission is due whether or not the renewal is negotiated by the agents.”
However, the judge dismissed the claim on the basis that although the fees, terms and conditions document was signed by the landlords, the fact that the agents would claim the renewal commission whether or not they did any work was not flagged up on the first page of the document where the fee was mentioned.
Miller said: “In my opinion, it is unreasonable and unfair for agents to charge a renewal commission at a percentage near to the percentage charged on the initial letting after the fourth year of renewal, especially if they had not carried out any work towards completion of the renewal terms.
“Even if they did, only a reasonable administration fee should be charged.”
A partner of the letting firm concerned told EYE yesterday: “We had been dealing with this property and the renewal for six years.
“Upon the seventh year the landlord opted to deal direct with the tenant.
“However, we reminded the landlord that a fee is still due.
“The landlord spoke with a solicitor who advised them not to pay and furthermore misinformed them without merit that a counter claim would be successful in relation to previous renewal fees that were paid.
“The landlords were very happy with all past dealings and were not inclined to put in a counter claim. However, the solicitor was insistent and said that they would win the counter claim.
“The reason the claim failed was not due to us doing any work.
“It was solely the fact that the judge thought that there was not an expressed term on the front page of the terms of business advising the client that if we did not physically produce a tenancy agreement, a fee would still be due.
“The solicitor’s cost [to the landlords] was in excess of £2,000 and our fee was under £1,200.
“This further proves how some solicitors pressure vulnerable landlords into unjust false claims which are baseless, to simply increase their own personal income.
“On the morning of the court day, the tenant gave notice to the landlord that he will be leaving the property in the next few months as his wife fell pregnant and they needed to look for a bigger living space accommodation.
“We continue to have a prosperous and successful relationship with the landlord.”
This latest case on renewals fees follows the definitive ruling in a case involving Foxtons in 2009.
The then OFT wanted the High Court to rule that renewals fees charged by agents broke consumer regulations.
The court did not do this, but did rule that renewal fees must not be hidden in the small print, must be actively drawn to consumers’ attention, be fairly priced, be in plain English and must not be open-ended.
Foxtons subsequently reached agreement that it would not charge renewal fees after the first two years.
Comments (12)
“Renewal commission becomes due in full whether a renewal agreement is signed or not when all or one of the original tenants remains in occupation. Commission is due whether or not the renewal is negotiated by the agents.”
So you want to be paid for doing nothing. I would love to hear the full court transcript. They were on a looser as soon as it went to court. I think the judge found a diplomatic way of telling them so.
Yet another prime example of fee’s being abused. Charging nearly a months rent for a renewal is just disgusting, especially when lets be fair they probably didn’t re-reference the tenants or go to much effort other than changing a few dates. (Let’s be honest we all know sometimes it can genuinely be that easy). Probably make a small fortune of managed property maintenance which I would guarantee, isn’t clearly outlined in their landlord contracts along with the many other fees they do not disclose they earn because thanks to the landlord. I can safely say I disclose every possible fee we may or may not earn right from referencing fees to out of hours call out charges for being locked out.
When the inevitable happens and our fee’s are banned completely, we will look back at agents like this whose greed has cost everyone else the income they need to survive. What a way to build our public reputation to stop them being banned.
If this is your agency, thanks a bunch.
Judging by the mixed number of thumbs up and thumbs down I am going to hazard a guess that this is old fashioned greed v modern and adaptable agents.
Modern agents being fairer on fees will be able to absorb the up and coming tenant fee ban and ride it out, old fashioned agents with their menu of add on fees have nowhere to hide and will lose more on their bottom line figures.
What’s done is done, you are going to have a really hard time undoing this, further redundancies and closures will follow. The ones that can ride this out and who have been reasonable will be rewarded for their ethical practices.
Sadly ethics are no longer part of the equation, we only charge £345 (Plus inventory) to do a let only and NEVER charge again on renewals etc etc. So even ethical agents like us are screwed!
Why screwed? Build your managed portfolio. It’s all about management for high street agents in the future.
If you have been reasonable to date on fees to both landlord and tenant then you can absorb some of the forthcoming loss from application fees into your model and still look competitive against the corporate’s and greedy.
Agree with you Pierce, we are the same and lowest fee to tenants in the area, and been here for years and years.
Thanks to the mystery agent involved I am sure we will all appreciate the report in Private Eye…. greedy agent in money for nothing case etc.
Most are home counties/london agents
AND
ARLA members
we can start a list:
Romans
Foxtons
Townends
The fee, including VAT, was just £47 less than one months rent. That is outrageous for a renewal! Regardless of the rent level, charging essentially a months rent to negotiate a new term, and maybe a rent increase simply cannot justify one months rent as a fee. As agents we wonder why we get slapped with legislation to try a curb this type of practice.
“In my opinion, it is unreasonable and unfair for agents to charge a renewal commission at a percentage near to the percentage charged on the initial letting after the fourth year of renewal, especially if they had not carried out any work towards completion of the renewal terms.”
Absolutely right! The sooner agents like this are hit hard by new regulations on unfair fees to both landlord and tenant, the better in my opinion.
I would feel very uncomfortable charging any kind of renewal fee for a tenant renewing a contract.
Let me get this right…….£1,123 to renew a contract. Now that’s a con.
And we wonder why we are where we are…