Agents who charge fees have come under a new spotlight and could face expensive legal action.
In a new test case involving Foxtons, but which could catch much of the whole industry, a law firm is seeking evidence from landlords and agents after a landlord allegedly discovered his bill included a “bung” paid by the maintenance firm to the agent.
The law firm, Leigh Day, says: “We consider that Foxtons has a potential conflict of interest in that the more expensive the contractor is, the more Foxtons makes in hidden commissions.
“We believe these charges to landlords are unlawful as they are not sufficiently disclosed, so the landlords cannot give fully informed consent to them. This is against industry codes of practice.
“These kinds of practices may be widespread in the lettings industry and it needs to stop.
“We are taking this case on no-win no-fee, with the aim of securing a refund from Foxtons for all affected landlords.”
Leigh Day cites the case of a landlord who was charged a mark-up by his agent on work done on his property. It alleges that the “hidden commission” was not disclosed in the contract.
The case forms part of potential claims in which the law firm states that thousands of landlords could now sue Foxtons – with the bill potentially amounting to £42m.
Leigh Day says on its website that it is bringing a group claim against Foxtons based on these allegedly hidden fees.
It could have major implications for letting agents which add mark-ups to repair and maintenance bills and/or charge contractors fees, and which do not fully disclose to landlords fees charged to tenants. However, Leigh Day also criticises other fees.
The landlord in the test case had a security light installed at the front of the property, following a request by the tenant.
Leigh Day says: “The claim is that Foxtons has been charging landlords hidden commissions of as much as 33% of a contractor’s fee for work done on their properties such as repairs, maintenance, electrical safety checks, inventory checks, etc, without obtaining the fully informed consent of landlords.
“It is also alleged that the London based estate agent has engaged contractors who charge as much as 2-3 times the market rate in breach of their duty to try to get a good deal for landlords.
“Foxtons are also accused of charging tenants various fees that Foxtons does not tell landlords about.
“For example, Foxtons currently charges both the landlord and the tenant a £420 inc VAT (a total of £840 inc VAT) fee for arranging for the standard form tenancy agreement to be signed each time a lease is entered with new tenants.
“It seems likely that the practice of not getting landlords’ fully informed consent for these types of fees is not limited to Foxtons and may be widespread in the lettings industry.”
Leigh Day appeals on its site for anyone who might be affected to get in touch with them.
According to the firm, the potential claims could total as much as £15,000 per landlord.
In the case, documented on Leigh Day’s website and also reported in yesterday’s Mail on Sunday, Foxtons charged the landlord, Dr Chris Townley, £550 plus £66 VAT for the light fitting.
The landlord had used Foxtons between 2011 and 2013.
Dr Townley, a lecturer in competition law at King’s College London and who previously worked as a principal case officer at the OFT, later found out that the contractor, Maintenance1st, had charged £412.50. The contractor told him that they had added in an additional fee, in order to pay Foxtons a commission for work received through the agent.
According to Leigh Day: “This was not set out in the invoice.
“Dr Townley started asking Foxtons questions about the commissions, and after initially refusing to give details, Foxtons eventually admitted that they had taken a substantial commission on virtually every contractor’s work, totalling 38 commissions and about £1,900.
“In many cases the commission was as much as 33% of the contractor’s bill. None of this was identified in any of the invoices or in the accounts that Foxtons gave Dr Townley.
“Foxtons refused to repay the commissions, denied any wrongdoing and relied on a clause in their contract that says they may retain commissions taken from third parties.
“We consider that Foxtons has a potential conflict of interest in that the more expensive the contractor is, the more Foxtons makes in hidden commissions.
“We believe these charges to landlords are unlawful as they are not sufficiently disclosed, so the landlords cannot give fully informed consent to them. This is against industry codes of practice.”
“These kinds of practices may be widespread in the lettings industry and it needs to stop. We are taking this case on no win no fee with the aim of securing a refund from Foxtons for all affected landlords.”
Dr Townley said: “I was incredulous when I found out that Foxtons took commissions from anyone working on my property without my consent. I felt betrayed.”
Foxtons declined to comment on the legal dispute, but told the Mail its charges were clear.
The paper emphasises that Maintenance1st is not involved in the legal claim.
The story reported in the Mail is here
Leigh Day’s fuller account is here
Comments (5)
It seems some agents want to have a percentage commission of the rent for managing the property, and then to make additional charges for each bit of work they actually do in order to provide that management service. It’s fundamentally wrong and, in the absence of transparency, my gut feeling is that the case against Foxtons will succeed.
If you’re going to charge your landlord additional fees/commission for arranging/supervising maintenance works then stick that in your T&Cs, but don’t take payment from the maintenance contractor.
This has been commonplace for years. The keys as always is transparency. The reason some agents aren’t transparent is that their T&C’s for management also include a clause allowing them to charge the Landlord a supervision / arrangement fee on top of their commission from a contractor. I recall one agent who had some works instructed at £1000, the contractor added their fee – the £1100 cost was charged at £1210 to include the supervision fee. Now that IS double charging. This is a far bigger issue than tenant fees in my opinion. Tenants know they will be charged a fee, often Landlords are unaware.
Really is stick it to the private rented sector and agent season isn’t it!
Agents now frowned upon for a mark up on inventories and a like! – as long as their full costs are disclosed before the landlord who signs up whats the problem? – Are people forgetting agents are in business not a charity?
As for mark up on works, of course it happens! agent near us even puts in the small print a 10% charge will be made on repairs. Its part the expense of having a ‘managed’ property!
I think this is going to be a difficult case to prove. Firstly most commerce is based on buying a product for less than you sell it for, so if Foxtons make money from a contractor selling their services to Foxtons that then how is that different? Yes they invoice the landlord directly via the agent, but the landlord would need the protection of that situation should a problem arise with the work in the future. Secondly the lawyers would need to establish that the cost of services was greatly inflated, but even if they can do that then the argument would be that Foxtons are not duty bound to shop around to get the best price for the landlord, Foxtons responsibility is to get a problem, that might be irritating a tenant, fixed as quickly as possible. Sometimes the more reliable contractors are not always the cheapest.
Not exactly and exposé agents skimming off the top on referencing fees, EPC’s, contractors, conveyancers, surveyors etc etc. I remember when estate agents used to generate turnover by selling and letting property, providing a great service to boot !