First time landlord renewal shock?

by Readers Question

10:55 AM, 28th March 2019
About 2 years ago

First time landlord renewal shock?

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First time landlord renewal shock?

Last year we became landlords for the first time, and used a  local agent to let out the property on a rent collection service. On the day of signing the contact, we were completely misled about their terms of  renewal and termination , especially since we specifically asked direct questions.

We were neither left with a copy of the contract nor advised of a cooling off  period. In fact the copy of the contract was only emailed to us a week before the tenants moved in, and that too at our request. At the time of renewal we have been told that we have to pay a renewal commission of over £1,000, which  has come as a shock to us as none of this was explained or agreed with us at the time of signing the contract.

We find their contract hard to understand, as we have been advised verbally that even if  the tenant leaves and comes back in the future, I will still be liable to pay the commission, yet the contract does not state that. The commission is due in advance, yet there is also no mention in the contract of what happens if the tenant leaves at any time before the next renewal.

I have already lodged a complaint with the TPO, and advised the agent, yet he is still demanding payment and threatening legal action.

I would really appreciate any suggestions or input as we are new to this and really concerned about this whole matter.

First Timer.

Editors Notes:

Foxtons: hidden fees in lettings agreements with consumer landlords

Office of Fair Trading (OFT) closed consumer enforcement case. Click here >> https://www.gov.uk/cma-cases/foxtons-hidden-fees-in-lettings-agreements-with-consumer-landlords

High Court proceedings

On 25 February 2008, the Office of Fair Trading (OFT) issued High Court proceedings against Foxtons Limited under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs). The OFT sought a declaration on the application of the UTCCRs to certain terms in Foxtons lettings agreements with consumer landlords. The OFT also sought an injunction against Foxtons preventing it from using the terms in future contracts.

OFT challenged the following Terms

  • Renewal Commission Terms: Which allow the agent to recover a further commission from the landlord where the tenant, and in some cases an occupant or other party introduced by the tenant, continues to rent the property from the landlord beyond the original term of the tenancy, and where the agent is not asked to provide any additional service in exchange.
  • Sales Commission Terms: Which allow the letting/managing agent to recover a commission where the property is sold by the landlord to the tenant and in some cases an occupant and/or any other party introduced by the agent, notwithstanding that the landlord does not wish the agent to perform any service in connection with the sale.
  • Third Party Renewal Commission Term: Which allow the agent to recover a commission from the landlord, where he has sold his interest in the property to a third party (and so has no control over and derives no rent from it), in the event that the tenant, or in some cases the occupant or other party introduced by the tenant, continues to rent the property (from the purchaser) beyond the original term of the tenancy and the purchaser does not agree to pay the commission.

The OFT and Foxtons engaged fully in a consultative process, in which Foxtons were given a reasonable opportunity to amend their terms. However, Foxtons contended that their agreements with landlords were not unfair, and failed to make the amendments we required and continued to use them.

Court of Appeal judgment

In April 2009 the Court of Appeal reversed a judgment handed down on 17 July 2008 by Morgan J in the High Court which struck out the scope of the relief that a court can grant in proceedings brought by OFT against Foxtons under the UTCCRs. The Court of Appeal ruled that the OFT is able to stop traders from relying on unfair terms in existing contracts with consumers. Foxtons had argued that only the individual consumer could bring such a challenge.

High Court ruling

A hearing to determine the substantive issues relating to the fairness of Foxtons lettings agreements with landlords was held in the High Court on the 29 April – 1 May 2009. The test of fairness related to Foxtons a) Renewal Commission terms, b) Commission on Sale of the Property, and c) Third Party Renewal Commission.

The OFT welcomed a landmark High Court ruling that certain terms and conditions used by Foxtons Ltd in its lettings agreements with landlords are unfair.

High Court Order

A hearing was held on 17 December 2009 at which OFT secured a High Court Order against Foxtons Ltd. This declared formally that certain terms in Foxtons’ contracts are unfair, and granted an injunction restraining Foxtons from relying on these terms (or terms of like effect), or inserting these terms into future contracts.

The ruling and order prohibit the use of sales commission and third party renewal commission in Foxton’s letting contract, and require that where renewal commission is to be charged, it must be clearly brought to the consumer’s attention – both in terms of the liability to pay it, the circumstances in which it will be payable, and the amount or rate at which it will be charged.

OFT expects other agents within this market, which use similar terms in their contracts with landlords to comply with this ruling and will take the necessary steps to ensure that this happens.



Comments

Neil Patterson

11:00 AM, 28th March 2019
About 2 years ago

Please see my editors notes above.

SimonR

16:10 PM, 28th March 2019
About 2 years ago

Leave the tenant on a periodic tenancy, there is no need to do a renewal especially at that fee

Marie

17:58 PM, 29th March 2019
About 2 years ago

All London agents have a renewal clause in their terms, usually half of the initial 6 or 12 month contract.

Mike D

9:03 AM, 30th March 2019
About A year ago

In my early days I was suckered into renewals......now I let them continue on a periodic tenancy so the tenancy agreement just rolls over and continues legally, with notice of 2m for landlords and 1m for tenant leaving.

Karen Holtge

10:03 AM, 30th March 2019
About A year ago

It seems I have missed a trick for many years. Is it true that if you let the tenancy roll on to a periodic basis, you do not pay the renewal commission ? I thought the agents still charged it?

Jireh Homes

20:59 PM, 30th March 2019
About A year ago

Concur with advice to allow tenancy to continue on a periodic basis, which voids the costs associated with renewal
Also check which agent body your agent is registered with and lodge a complaint with them as well at TPO.
Also explore changing to another Agent who has fairer terms of business.

Karen Holtge

1:52 AM, 1st April 2019
About A year ago

Reply to the comment left by Jireh Homes at 30/03/2019 - 20:59
Thanks very much. This is very helpful. Is it still the case that you do not have to pay renewal commission, even if the terms of business state that it will be charged? It seems unfair to me that an agent can charge for finding a tenant twice, when the work was done only once.

Badger

18:39 PM, 1st April 2019
About A year ago

As a quick aside on rolling over onto a periodic tenancy - watch out for the wording of the AST in connection with this.

If the AST is either silent on the subject, states simply that the tenancy will roll into a "periodic tenancy" or a "statutory periodic tenancy" then you can end up being stuck with a chunk of council tax liability when the tenant informs the council that they are no longer liable from a date before they actually end up leaving the property.

The simple solution to avoid this is to ensure that the AST specifically includes language which includes the phrase "contractual periodic tenancy" (and preferably also words to the effect of "for the avoidance of doubt"!).

It's not the tax that one ends up paying on behalf of the tenant that wrangles here, which tends to be fairly modest in monetary terms anyway, but the sheer hassle of having to deal with the council as a consequence.

If the AST uses the "periodic" word then a simple copy of the document emailed to the council will see them off your tail immediately.

I have moved several of my properties from letting agents that simply cannot understand this simple drafting point to more enlightened ones who are now enjoying my business to the loss of the original agents.

Heather G.

18:51 PM, 2nd April 2019
About A year ago

The other thing to look out for is the wording in your mortgage contract, if you have one. Mine stipulates my tenants MUST be on an AST of no more than 12 months. I have a feeling my insurance might also specify the need for an AST.

Nick Pope

11:12 AM, 6th April 2019
About A year ago

As I have said several times before I simply tell letting agents at the outset that they can have full management for 1 year and, assuming the tenant remains after that date I will take over rent collection and management with no further fees payable to them. It's take it or leave it and they sometimes load the fee rate by a per cent or 2 but I am happy with this as they get the hassle.
Of course if the tenant is difficult I do not choose to take up the option to take over.
I have yet to have a refusal by an agent.


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