Legality of Renewal fees for Periodic Tenancies?

by Readers Question

7 months ago

Legality of Renewal fees for Periodic Tenancies?

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Legality of Renewal fees for Periodic Tenancies?

Dear P118 readers, I wonder if anyone has had experience with this issue lately?

I am using Foxtons to let a property (as they had an offer on at the time) and the fixed term (18m) is coming to an end in 60 days. I was called by Foxtons asking if I wanted to renew or get the tenant out.

I informed them I may be reverting to a periodic tenancy as I wanted the flexibility of vacating the premises. Foxtons informed me that despite them not doing any work after the initial contract, I would still be liable for a 9%+Vat Renewal fee even for periodic tenancies.

Now, I have read the OFT ruling back in 2010 which laid out:

On the 19th July 2010 the Office of Fair trading released a press release on its evaluation of its consumer enforcement case against Foxtons for breaching the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs). In February 2010, the OFT secured an enforcement order from the High Court when it ruled that Foxtons’ renewal commission terms were not transparent, this led to Foxtons amending some of the terms. The evaluation has now found that the OFT intervention has resulted in positive benefits for consumer landlords that use Foxtons with an estimated annual benefit of at least £4.4 million.

The enforcement order relating to Foxtons declared that the terms listed below are unfair, not binding, and may not be used or relied upon in contracts with consumer landlords:

a. Terms which require landlords to pay renewal commission to Foxtons after the sale of their property to a third party because the original tenant remains in occupation.

b. Terms which require landlords to pay a sales commission to Foxtons in the event they sell the property to their tenant.

c. Terms relating to renewal commission, where the tenant remains in occupation, and in some cases an occupant introduced by the tenant, after the initial fixed term where the agent is not asked to provide any additional service.

My issue related to part C of this order. I wonder whether this is relevant nowadays as foxtons have amended their terms to be more clear that they want to charge these fees (as before they were buried in small print). They are still charging the same fees, they are just in larger print now.

I have never paid an agent renewal fees for a periodic tenancy so I wanted to know if this is still working practice among landlords, despite signing an agreement where their terms stated I would pay them a commission even in a “hold over” tenancy.

It is a confusing topic as on the one hand, the OFT ruling states they cannot charge fees on renewals where they do no work and on the other hand, their terms and conditions to this day still quote the fees.

Any advice would be appreciated.

Ved



Comments

Neil Patterson

7 months ago

Hi Ved,

We often have questions on renewal fees and agency contracts, but usually there is no way out other than negotiating.

I there, can only assume Foxtons have changed their contract since to make it legal.

David Price

7 months ago

Reply to the comment left by Neil Patterson at 11/01/2018 - 09:46This sort of sharp practice, 9% for doing nothing, is why all fees are going to be banned. Letting agents through their inherent greed have brought this upon themselves.
I agree with Neil, negotiate but with your landlord not the agent, after all your tenancy agreement is with your landlord not with the agent.

Ian Narbeth

7 months ago

Ved
It would be necessary to see the terms of the contract and also the new contract but I would put it to Foxtons that you consider the requirement for a renewal commission unfair and contrary to a 2009 order. I have looked at it briefly (Claim No HC08C00498) and it says that "the old renewal commission clause and the new renewal commission clause and any term or terms having like effect, are unfair within the meaning of the regulations." The order prohibits Foxtons from putting such clauses in their contracts. I have not had time to research further if there is another order.
If as you say "They are still charging the same fees, they are just in larger print now" then it would appear they are in breach of the court order.
I would ask Foxtons if their terms have been approved by the OFT and if so, to see evidence of that. Absent such evidence, I would say that you do not intend to pay and that you will be seeking to have the matter referred to the OFT again and that they may be in breach of paragraph 2 of the Order.

silversurfer2017

7 months ago

I presume it is just a rent collection service you are paying for and not full management or any other service? Firstly arrange with your tenant to pay you directly rather than via the agent. If your tenant is a good tenant and you feel you do not need to hold a deposit then instruct Foxtons to release the deposit back to the tenant or arrange for Foxtons to transfer the deposit to a TDS scheme with you as the custodian. Tell Foxtons to sue you if they feel they have a good case in demanding money for no work. They will initially create a lot of fuss but cannot afford to have a losing case. They will prefer it to remain a grey area so that they can continue to extract money from landlords. I had a similar situation with Barnard Marcus about 4 years ago. They 'only' wanted 6% + vat but also wanted an arrangement fee for the periodic tenancy paid by both the tenant and the landlord. I agreed with my tenant to have initially a new 1 year AST to break the link with the agent's originally tenancy agreement. Then we let it roll over into a periodic. After a few months they stopped sending threatening letters. I still have that same tenant in my apartment.

AP

7 months ago

I can’t believe that I’m standing up for Foxtons here, but at the end of the day their terms and conditions are pretty clear (as most agents are these days). When you signed up to use them, you could have used a different agent who would negotiate their fees to something more agreeable. But as they had a special offer on, you decided to use them. They found you a good tenant that you are happy with. And that tenant is staying in the property. But you want to re-negotiate the contract that you signed up to.
This post isn’t meant to be an attack on you so I’m sorry if it comes across like that. I just think this is how a judge would view it should they decide to take you to court.
I always pay renewal commission on my self managed properties, but try to use agents who will negotiate it to a lower level. Where my properties are based, no decent agent will not charge for renewals and I think if they’ve found me a really good tenant at a good rent, I don’t begrudge paying them a 5 or 6% renewal for a maximum of three years. I can then also build a good long term relationship with those agents.
On certain occasions I’ve used Foxtons who refuse to negotiate, but have done so knowing their terms are not as favourable.

silversurfer2017

7 months ago

It wasn't a special offer. It was a tenant find and rent collection service only. Initially it was a 12 month AST with a six month break clause. This tenancy was renewed twice with both the tenant and myself having to pay another set up charge each time. Towards the end of 3 years both the tenant and myself were getting fed up, and the final straw was that they wanted to charge us both a setup fee to let the existing AST lapse into a periodic tenancy. This was the very first property I bought in the 1990's and I was probably naive and too trusting. I expected an agent's terms to be fair and reasonable.
Instead I have since learned that some agents regard tenants as a 'cash cow' or the 'gift that keeps on giving'. A landlord likes to think of his tenant as being solely his tenant, but some agents always regard the tenant as their tenant from the viewpoint of earning commission for them. They justify this by saying it is a reward for them finding you a good long term tenant. So for how many years is it reasonable to keep on saying thank you, thank you? 3years, 5 years or 10 years or without limit? In my case as my tenant and I had each paid considerable fees at the very start of the tenancy, plus setup fees for new lease agreements I felt that after 3 years they had been sufficiently rewarded. There is a difference obviously between a legally binding contract/agreement and what most people regard to be a fair and reasonable outcome. Many leaseholders with escalating ground rents are trapped in their properties. They can't sell because no-one can get a mortgage and they can't afford to stay and pay ground rents going up to £9,500 per annum. Legally binding contact YES, fair and reasonable NO. IMHO some of the clauses in these agents terms and conditions would not stand up if legally challenged. That's why they will back down.

Jireh Homes

7 months ago

Agents charging for allowing a lease to roll over to periodic makes no sense. Suggest you find out implications of simply refusing to pay, as there should be no change in lease arrangement.

Badger

7 months ago

Reply to the comment left by Jireh Homes at 13/01/2018 - 22:04
I have had this issue arise on a number of occasions since I went fully-managed via agents ten years or so ago (used to self-manage for the previous 20+ years).

To date I have simply insisted that, since I am paying them a regular percentage for full management, the agent not charge either me or my tenant for, as I put it, "a couple of phone calls, the changing of a date on a tenancy document, and the cost of a stamp to mail it to the tenant".

So far, and mostly without too much of a grumble, every agent (around a dozen or so) has accepted it but then I don't and won't deal with the large chains where I can avoid it. Regrettably, Foxtons are the worst and I would expect to have a real battle on my hands if I ever found myself having to use them.

Ian Narbeth

7 months ago

Reply to the comment left by Anuroop Pillai at 13/01/2018 - 08:53
The issue is not simply what Foxtons' contract said or about re-negotiating it. The issue is, is that contract lawful or contrary to a court order made against Foxtons?

silversurfer2017

7 months ago

The original Foxtons case a few years ago ended in a sort of limbo or stalemate on the agreement by Foxtons that they would change some of their terms, like still claiming renewals commissions on properties that had been sold with tenants in situ, or claiming sales commission if the property had been sold to, or introduced by, a tenant.
Unfortunately the legality of charging even reduced commission on renewals has never been tested in any court case to my knowledge. Foxtons could not afford to lose such a case as it would set a legal precedent. That is why they will protest a lot, but will eventually back down.

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