A High Court judge said today that fees charged to landlords by letting agent Foxtons when tenants extended their contracts were like a "trap".
Mr Justice Mann ruled that a number of terms and conditions used by Foxtons in its letting agreements with landlords were unfair and were not flagged up prominently enough.
These included requiring landlords to pay commission of 11 per cent of the annual rent if a tenant remained in a property beyond the initial term, even if Foxtons played no part in persuading them to stay, or was no longer collecting rent or managing the property.
The company also demanded commission of 2.5 per cent of the property's price if the landlord sold it to the tenant, even if they had not helped to broker the deal, while in some cases landlords had to go on paying commission even after the property had been sold.
In his judgment Mr Justice Mann said the repeat renewal commissions being charged were like a "trap" or "timebomb" for landlords, many of whom were amateur buy-to-let investors.
He said such important terms should be flagged up prominently not just in the contract, but also in any sales literature, as consumers would not expect important obligations to be tucked away in the small print and not be specifically brought to their attention.
He added that landlords were likely to be "astonished" when they found out about the potentially large financial liability they had to Foxtons when they sold a property, even though the group had paid no material part in the transaction.
He also found that Foxtons had used language in its contracts that was not plain and intelligible.
The court case was brought by the Office of Fair Trading after it received a number of consumer complaints.
The trading watchdog welcomed the ruling, and said it would now ask the High Court for an injunction preventing Foxtons from continuing to use the terms.
It also called on the wider letting industry to comply with the ruling.
John Fingleton, chief executive of the OFT, said: "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."
The ruling was also welcomed by the National Landlords Association.
John Socha, vice chairman of the NLA, said: "The NLA has been campaigning on these unfair fees for almost two years.
"This sends a direct message to letting agents that this lack of transparency must stop. Contracts must be clear with provisions which are upfront and plain and intelligible."
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