The High Court in London said that a practice used by Foxtons requiring a landlord to pay substantial sums in commission where a tenant continues to occupy the property after the initial fixed period of the tenancy has expired even if Foxtons plays no part in persuading the tenant to stay, and does not collect the rent or manage the property, was unfair.
Mr Justice Mann also said in his ruling that requiring a landlord to pay commission to Foxtons even after it has sold the property and Foxtons receiving a full estate agents' commission for sale of a property to tenants were also unfair terms and conditions.
The ruling was immediately welcomed by the Office of Fair Trading which brought proceedings against the letting agent under the Unfair Terms in Consumer Contracts Regulations 1999.
The OFT will now ask the High Court to go on to grant injunctions preventing the continued use of the terms by Foxtons.
The ruling described the charging of repeat renewal commission by Foxtons as a 'trap' or a 'timebomb' for consumers. The judge held that such important terms must be flagged prominently not just in the contract, but also in any sales literature and processes.
He said a typical consumer would be unlikely to read standard terms with a great degree of attention and would not expect important obligations to be tucked away in the small print and not specifically brought to their attention. He also found that Foxtons had used language in its contracts which is not 'plain and intelligible'.
The UK lettings industry will have to comply with the ruling or face further action from the OFT. 'This ruling sends out a clear and unambiguous message that businesses offering services need to ensure unexpected or surprising terms are not hidden away in small print. Contracts need to be written in clear and straightforward language with important provisions, particularly those which may disadvantage consumers as in this case, given prominence and actively brought to people's attention,' said Chief Executive, John Fingleton.
'The OFT prefers to work with businesses to agree solutions where concerns are raised but we will not hesitate to take court action where this is not possible and especially where there is serious harm to consumers,' he added.
'We are extremely pleased that this matter has finally been clarified in a way which is to the benefit of consumers and the industry,' said Michael Brown, Foxtons CEO.
