Foxtons’ share prices dipped 4% yesterday on news that a legal firm is attempting to bring a group claim against it on behalf of private landlords.
If successful, the group action could reportedly cost Foxtons £42m.
If other agents charging similar fees are dragged into the dispute, it is thought compensation payments could top £100m.
Meanwhile the landlord at the heart of the case, Dr Chris Townley, has said that Foxtons “tried to rip off the wrong guy”.
Townley, 44, is a lecturer in competition law at King’s College London, who previously worked as a principal case officer at the OFT.
He is seeking £14,000 in compensation for “inflated costs for work” done over the two and a half years he rented out his property through Foxtons.
He cites a repair bill of £412.50 that he claims was marked up by almost 50% to £616.
Townley said: “Foxtons were very dismissive when I first went to them saying the charges were unfair.
“Being a lawyer has helped. It gave me confidence. It meant they couldn’t pull the wool over my eyes. With my legal team, they have messed with the wrong guys.
“Who knows how many people will join the action. If a lot do, though, it could really revolutionise the rental market.
“I’m a simple guy. I’m not a hero by doing this: they ripped me off and I just want my money back.
“I hope other landlords join, and together we can form a powerful case.”
His legal firm Leigh Day alleges that Foxtons has been charging landlords hidden commissions.
Solicitor Chris Haan said: “These kind of practices may be widespread in the lettings industry and it needs to stop.”
He added: “It’s a very significant case and there are potentially thousands of claimants out there.
“The case could significantly change what charges estate agents bring to landlords in the future.”
A spokesperson for Foxtons said: “We are incredibly disappointed to hear when any customer is dissatisfied with the service they have received. However, as a legal dispute we are not in a position to comment on the specifics of this case.
“We are satisfied though that our fees are clearly laid out within our terms and conditions and that approvals are obtained from our landlords before works commence on their property.
“As part of our managed service to our landlords we arrange for maintenance works to be carried out on their behalf from a panel of carefully vetted and trusted contractors.
“Due to the volume of work we provide we are able to achieve discounted rates offering competitive value with the benefit of efficiency, availability and quality of work that many landlords would not be able to achieve on their own.”
Comments (38)
Yet again its Foxtons who push the boundaries in every area all the time which eventually ends up in Court.
The practise of hiding commission is wrong. My contractors advise that most if the letting agents in Doncaster do it also including the corporates.
Put simply if the agent sends the invoice and clearly marks what they are adding on the my moral compass tells me that is OK. We add on a fee, for us if we are asked to get quotes for installing a bathroom, kitchen or large work. We also add on fees, but show them for sizeable work when a property is empty. But is sounds like Foxtons are not even getting good value with putting the light up for £400. We can get a house rewired for £2k
Small jobs inside a tenanted property are always free.
Does ARLA disclose its fees when it receives kick backs for tbeir affinity benefits?
where does there moral compass lie. A handling fee is one thing but a 33% mark-up seems to be sheer greed. On another note I am not sure HMRC would have been shown this commission in such a clear light. One problem leads to another and so on, rest assured it will be us in the front line picking up the backlash for this one.
Well I can tell you for fact that Leaders do this.
We don’t but I’ve had landlords of theirs contact us to ask if a price quoted seemed reasonable, more than £600 for a £189 off the shelf 750w oven and the apparent urgent need to add a fully independent spur to same oven which was absolutely not required (building was less than ten years old). I know three contractors we work with that have asked me what percentage I want, surprised that we didn’t and telling me Leaders do. And I know a contractor that refused to work for Leaders as
he was asked to kick back to them. Another one told me he had to bid to get onto their list.
The property management fee should cover the agents work. If it’s not, be upfront and ask for the proper fee, not cloak it up.
What id like to know is can this practice still legally happen given the requirement now to fully disclose to a landlord the charges they might incur ?
@Denise
Why so hard on the Landlord? You do realise that the OFT as was dealt with cases across a wide spectrum of business – though this chap does say he was in the competition side.
Foxton’s may have provided a quote, just as you do on jobs over £200 (first time I have heard of a collar on minimum quotes in case you are unaware a landlord is entitled to receive all quotes for anything he pays) but unlike yours which would not show any mark ups or commissions because you laudably do not charge them, Foxton’s do (and how) but also do not show them!!
The Inspector and Jungle Property are closest to the mark here. Yes you can refer to a maintenance mark up in your terms of business, usually 5% to 10% of the invoice. But 33% which only ends up at that level because of an already added on fee. Sorry, but those of you who don’t know where to stand or have the slightest shred of sympathy for Foxton’s are wrong.
This issue is about hidden commissions, asking (or instructing as the price of getting the work) a contractor to add a hidden mark up to a quote, estimate or invoice is an offence in case any doubters do not actually understand the fiduciary duty an agent has to a Principal. The whole issue here is that the client did not know what was going on and should have because it should all have been stated on the invoice but of course it wasn’t as then the client would have known.
Or in this case, clients. Good news for Landlords this case, as they are entitled to be paid all hidden commissions they did not know about and more to the point, under fiduciary requirements, did not authorise.
Please industry not hide behind the “but they all do it M’Lud” argument. If you are overtaken on the motorway by a lunatic doing 100mph does that make it Ok for you to start doing the same?
I ‘suspect’ the practices of inflating invoices, adding commission and kick-backs for referrals are ‘almost’ universal in the industry. One very large organisation I know insist invoices passed to their clients are inflated so they can take a cut. If a landlord is paying an agent of £X or X% for an agents services to represent them where are the ethics in slipping your hand into his/her pocket to see if you can get some more money?
Without knowing all the facts I won’t defend Foxtons here but I will say this: we are all quick to condemn this but I wonder how many reading this article take referral fees from conveyancers like Live or Myhomemove etc, how is this different? Further if I were a contractor, the chance of getting regular work from Foxtons, probably worth thousands of pounds a year to my business, I would pay them a commission. That doesn’t mean the owner gets charged more, simply that I am reducing my price to guarantee future jobs.
You can dress it up how you want but the bottom line is that business exist t make money, in Lettings those earnings come from several sources, you take those away and actually they become less viable and fees go up. No one wants to get ripped off and I am all for more transparency but we do not live in a world where people are offered services for costs and we shouldn’t lose sight of that.
I agree in part, but the major difference is that a conveyancer will disclose in their terms that they are paying a referral fee to the introducing agent. So the client is fully aware.
I believe it is quite widespread throughout the industry. As a supplier, we are often asked by Agents to inflate our invoices so that the Agent can take a percentage for themselves on top of our actual fee. When it is concealed within our invoice, rather than being openly charged to the Landlord by the Agent on their own invoice, I am rather suspicious that this is not an agreed Management supplier arrangement fee. Rather, I suspect it means that the practice of inflating the invoice has not been agreed to by the Landlord in the terms of business and the Landlord has no idea it is taking place.
…….oops, trigger happy, she took a plumbers van keys off him as eveytime he ‘nipped out to the builders merchants’ he vanished for 2 days – he finished the shower tray job a week later but she didn’t have my lot doing it and adding a fee did she? – Jonnie
So, they’ve picked the wrong one? – Foxtons don’t mind a bit of fusty cuffs in court so it looks like we will watch this one evolve. Let’s hope this landlord has picked the right agent, also be nice to know if Foxtons put the contractor fees in the agreement he signed and he had the advice around him then? Anyway, let’s see. A managing agent with a good little group of decent contractors, giving them a stream of work gets that thing your average workman struggles with, reliability / actually turning up when they say they do…….that’s worth 10% we had a landlord a while back and she insisted on managing repairs and she ended that took a plumbers van keys off him
I’ve heard that some local councils have similar practices with their contractors. Only hearsay mind, no idea if it’s true or not.
SteveMac – just to say you are not the only agent who doesnt add anything to contractors invoices (either end). It is unethical and dishonest if you havent been totally upfront with your customer. The likelihood is an agent employing these sorts of practices would never highlight these hidden charges to their clients, because it would be challenged by them. Utter greed.
Wasn’t trying to suggest I was the only agent period who did not add commission, merely I was the only one a couple of my contractors work for.
The underlying question in this is whether consent must be informed in order to be valid ie do agencies have to actively highlight ancillary revenue streams to their principal or is reference to them in their Ts & Cs sufficient.
What part of “managed” do Foxtons not understand? If an agent is being paid to manage a property that surely includes arranging for contractors to carry out repairs or replacements? In our T of B we state that we will provide a quotation for works over £200 – presumably Foxtons did not provide a quote? We have never ever added a % to contractors’ invoices nor have we ever taken a payment from a contractor to be included on our list of contractors. Landlords should be very careful to protect themselves against money-grabbing agents – READ THE SMALL PRINT – SEVERAL TIMES – and use a magnifying glass when you get to the very small print. Actually, after the very public court cases and numerous tales of bad practice associated with Foxtons I am astonished that landlords are still being conned into instructing them at all! Particularly this chap who sounds chuffed that he is not only a lawyer but was a big cheese in the OFT. His OFT background does not seem to have made him very worldly-wise does it? To be fair, a lot of the corporate letting agents employ the same practices as Foxtons. What astonishes me is that Landlords still go on instructing them – could it possibly be because they routinely grossly overvalue the properties ……… ?!
yep
Absolutely spot on Denise.
We have never added anything to contractors invoices although a number of them tell us we are the only agent who doesn’t!!
snap
snap again!
Do Foxtons charge their contractors a fee to be on their “panel” ?
Yes they do… They charged my company £1800 to be an approved contractor.
In addition they set the rates for work, paying set hourly rates. They were extremely slow at paying and within 6 months they owed us in excess of £4,000
4 years later we are still owed money and no doubt they are co siderably better off
mcgoo
Never have, never will. That’s what our monthly management fee covers. I wonder how many Foxtons negs advise clients of the % added to contractors bills????
Not sure where i sit on this,
On one hand i can see where the landlord is coming from, he pays (i assume) a fully managed fee so feels ripped off at paying an add on to work under taken.
On the other hand you have a letting agent that no doubt has many enquirers that are not straight forward and probably not cost effective to do within there fully managed fee so add a mark up to cover time and staffing.
You don’t do lettings do you Smile?
No, To be honest this is half the reason why!
Lots of issues and a thankless job, not sure the issues are worth what you can make.
Think go back a few years and you can charge 12 – 15% you can offer a fully managed package, Round here now most are 7%
You should!
The fully managed fee does not include the costs of any repairs, they are all additional. Some agents add a % to the cost of the contractors bill and that’s the grey area here
I keep flirting with the idea,
Obviously the extra income is welcome but so many issues can arise from just a small portfolio. I like my job and in the most part we have no upset customers (well apart from the occasional looney we all get). I can see adding lettings will open the flood gates to people we may not necessarily want to deal with, and we are tied to them for at least 6 months.
I take it you offer it Gump? have you always?
We do, always have.
Much as everyone has a lettings horror story or two, it’s not as bad as people make out. For the most part lets run very smoothly and yes, the additional income is very welcome indeed.
With the tenants, you will very quickly learn to become an excellent judge of character and that will serve you very well 🙂
Of the 3 parts of property management, lettings is the easy bit with a natural professional enhancement to your sales activities. Offering a Lettings service to landlords who will buy through your agency means added stickiness.
The other bits of full service rentals can be outsourced, a firm like Rushbrook and Rathbone will look after the management and accounting side of things for you allowing to you to get the best out of your selling staff. There is little to fear from lettings and the benefits of maintaining contact with landlords is invaluable.
With the level of support available to you I can’t think of anything you need fear about adding lettings to your portfolio.
I started out with lettings and was asked to take on sales off the back on my lettings department. Most of the complaints you hear of are avoidable and down to bad practice in the first place. A strong team leader who is knowledgeable in lettings should avoid bad practice. Lettings gives opportunity to build long term relationships in the local area, which can be of benefit for the sales team. With a good team on board lettings it can be very rewarding.
Looking at the comments i may have to flirt a little more with lettings by the sound of it.
Appreciate every-bodies comments!
I am aware of at least one, very large, agent for whom this practice is the norm, having spoken to a number of ex employees who found it unconscionable to work for them recently.
“We are incredibly disappointed to hear when any customer is dissatisfied with the service they have received.”
I think you will find he is unhappy with being overcharged rather than your service, I’m sure the light fitting has been hung to the highest standard
I have often thought that this practice is widespread in the industry, it is quite difficult to be sure. I would be interested to hear whether other agents do or do not add commission to contractors invoices (anonymous comments only!).
I have not had experience myself however I understand that as long as it is clear in the ToBs you are covered, and I expect this is where Foxtons will fall down.