Foxtons in court fight over 'unfair' contracts

Office of Fair Trading accuses estate agent of exploiting landlords

Foxtons may be familiar with London's swishest apartments and homes but the city's brashest estate agency found itself in the grander, austere surroundings of the Royal Courts of Justice yesterday when it was dragged before a High Court judge to defend its business practices.

In a test hearing that will have ramifications for the UK's 15,000 letting agents, the Office of Fair Trading claims that the terms of Foxtons' residential letting contracts are so onerous and one-sided that they are illegal under consumer legislation.

Foxtons, whose sales staff are famous for their liveried Minis and high-octane valuations and commissions, maintains its contracts are reasonable.

At the heart of the dispute is whether landlords who fill their properties with tenants who are supplied by Foxtons have a continuing financial obligation to the agency once the original letting period finishes.

At the start of the week-long case, barristers for the Office of Fair Trading, Nicholas Green and Helen Davies, claimed that Foxtons had overstepped the mark by demanding payments after this initial period.

The office said it objected to terms that "potentially require landlords to pay Foxtons substantial sums in commission where a tenant continues to occupy the landlord's property after the initial fixed period of the tenancy has expired – even if Foxtons plays no part in persuading the tenant to stay, and no longer collects the rent or manages the property".

The government regulator stated: "Foxtons' terms can also require the landlord to pay these sums after the landlord has sold the property. The terms also demand commission where the landlord sells the property to the tenant, even where Foxtons has played no part in negotiating that sale."

Foxtons, which has 24 sales offices in London and Surrey, did not comment to the media about the case. It is expected to outline its defence in court later this week. In a previous statement about the case, it said: "We look forward to arguing the merits of the industry's position in the High Court."

The Office of Fair Trading launched the proceedings against Foxtons in February 2008 under the 1999 Unfair Terms in Consumer Contract Regulations, the same legislation which it has successfully used to challenge overdraft fees imposed by banks.

Under thelegislation, a term is likely to be considered unfair if it causes a significant imbalance in the rights and obligations of the different parties under the contract, to the detriment of consumers. A consumer is not bound by a standard term in such a contract. The office, which is seeking an injunction against Foxtons preventing it from using the terms, took action after complaints from Foxtons customers.

If successful, the office said it intended to enforce the ruling throughout the letting industry "wherever similar terms are being used".

The case is being heard by Lord Justice Michael Mann.

Hot property: The Foxtons story

* A former Army officer, Jon Hunt, started Foxtons in Notting Hill in 1981.

* In 2006, a BBC undercover documentary claimed staff used faked documents to support inflated prices and put forward false offers to sellers. Mr Hunt said: "There were several things we had done... that were wrong."

* Mr Hunt sold Foxtons to the private equity company BC Partners in May 2007 for a reported £390m.

* Foxtons charges above average commission: 3 per cent for multiple agents, 2.5 per cent for a sole agent.