The letting agent-landlord relationship - a dangerous liaison?

How transparent should letting agents be about income derived from their agency relationship with a landlord? Chris Haan, senior solicitor in the international and group claims department at Leigh Day, discusses his firm’s planned group action against Foxtons over hidden fees and charges.

What is the basis of this potential class action?

Leigh Day is looking to bring a group court case against Foxtons for landlords who have used Foxtons either just to let, or to both let and manage, their property. The aim of the case is to get a refund for what we claim are hidden fees and charges and for alleged overcharging for work done by contractors.

Letting agents owe landlords fiduciary duties that include:

a duty not to make any profit or income from the agency relationship without the landlord’s fully informed consent; and
a duty of loyalty, such that the letting agent must not let their interests conflict with the interests of the landlord without the landlord’s fully informed consent.

The claim involves allegations that:

Foxtons takes commissions and fees from contractors (such as for repairs, cleaning and inventory and gas safety checks) without landlords’ informed consent—we have seen evidence that Foxtons takes a 25-33% mark-up on contractors’ fees;
Foxtons took various fees from tenants without the landlord’s informed consent—for example, it appears that Foxtons charges both landlords and tenants a fee of £420 including VAT for arranging a new tenancy agreement to be printed and signed (a total of £840 inc VAT);
Foxtons uses contractors who charge much more than the market rates, in breach of their duty to try to get a good deal for landlords; and
Foxtons’ above breaches of duty are of such seriousness that it should have to repay not just the fees it did not disclose, but also its primary agreed fees/commissions for letting and managing the landlord’s property.

We believe that most landlords who use Foxtons would have a good claim if they did not know about the hidden fees and commissions.

Although Foxtons’ standard contracts contain a provision that says they may retain any commissions paid by third parties, that clause does not appear to be drawn to the attention of landlords and it doesn’t say how often they are received or how large those commissions can be. We will argue that this is not sufficient disclosure of the commission charged on contractor’s work to enable a non-professional landlord to give fully informed consent. To comply with its duties Foxtons should have followed the guidance in industry codes of practice, such as the ‘Private Rented Sector Code’, which was drafted by the Royal Institute of Chartered Surveyors and is supported by the main industry players. That code states that an agent should disclose any commission they might receive at the time that estimates are provided to the landlord.

What leeway do estate agents have when charging for repairs to managed properties? Can agents profit from repairs?

There is nothing wrong with taking commissions from third-party contractors so long as the agent gets the landlord’s fully informed consent.

Is there any statutory guidance for such arrangements or is it simply down to contracts?

The dispute is mainly about principles of common law and equity. Are the terms of Foxtons’ standard contracts sufficient for it to establish that landlords have given fully-informed consent to the contractor commissions and the potential conflict of interest that arises? There is limited statutory guidance. The recently enacted Consumer Rights Act 2015 contains provisions requiring letting agents to be more transparent about their fees and to publish a list of their fees on their websites and at their premises. There is a fine for failing to do so.

What would it mean if Foxtons were found to have breached their legal duties in their practices?

Foxtons may be ordered to:

repay any commissions and fees taken without the landlords’ consent;
repay the difference between the inflated price charged for work and the market price;
forfeit some or all of their agreed fees and commissions that were taken with consent, if the breaches are considered to be sufficiently serious;
pay interest on the above amounts.

Interviewed by Diana Bentley.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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