A document seen by Eye and which sets out the arguments by the law firm looking to bring a group court case against Foxtons, makes clear that it is seeking to get refunds for “hidden fees and charges” on behalf of landlords.
The document specifically mentions that ‘no win, no fee’ legal firm Leigh Day, which normally specialises in injury and negligence claims and whose current caseload includes hip replacements, is acting for “consumer” landlords.
These are normally categorised as smaller, or “ordinary” landlords with up to three or five properties – the definition varies – rather then sophisticated investors with larger portfolios, or who are full-time landlords or have company statuses, but which are expected to sound out their own decisions.
Meanwhile, the landlord at the centre of the dispute says that some landlords and tenants who have contacted him have been in tears, and he has called for the lettings industry to be more transparent. He says his fight will go on.
Foxtons says its fees are clear and that approvals are obtained from landlords.
The case could have implications for a number of other letting agents, while the Leigh Day document also makes allegations that go well beyond the matter of repairs bills, taking in inventory firms, and fees charged to tenants.
In the document, Leigh Day alleges that Foxtons charges “hidden commissions of as much as 25-33% of a contractor’s fee for work done such as repairs, maintenance, electrical safety checks, inventory checks, and the like”.
It goes on to allege: “Foxtons’ contract … provides ‘If the cost of any work exceeds £700 an administration charge of 10% + VAT (12% inc VAT) of the invoice will be made’. The threshold was £500 previously.
“That is, Foxtons’ is already taking a commission of 25% of the invoice unbeknownst to the landlord, and then they charge another 10% plus vat administrative charge on top.
“We have seen a number of examples where the only reason why an invoice is over the threshold is because of Foxtons’ hidden commission.”
Another allegation is: “Engaging contractors who charge as much as 2-3 times the market rate even before Foxtons adds its commission, in breach of their duty to try to get a good deal for landlords. It would appear Foxtons has a conflict of interest in that the more expensive the contractor is, the more it makes in hidden commissions.”
Yet another is: “Charging tenants fees, which Foxtons does not tell landlords about. For example, Foxtons currently charges both the landlord and the tenant a £420 inc VAT fee (a total of £840 inc VAT) for printing out a standard form tenancy agreement on each occasion that a lease is signed with new tenants and for arranging for it to be signed.”
The document draws attention to agents’ fiduciary duties, including a duty not to make a profit or income from the agency relationship without the “landlord’s fully informed consent”.
It says that the legal burden of proof on Foxtons is to establish that the landlord has given such consent.
The document also claims that there is no reference in Foxtons’ contracts that the firm may receive commissions from its repair, maintenance and inventory contractors, or fees from tenants.
The document also quotes Rule 15 from ARLA – Foxtons is a licensed ARLA agent.
This states: “Duty not to accept secret commissions: Members shall not accept any payment from a third-party service provider unless it is disclosed to their client. This includes interest on their client (bank) account if appropriate.”
The document also quotes CMA guidance, including that letting agents should “disclose any sums or commissions you receive from tenants or tradespeople”; and a duty of loyalty, which restrains agents from making ‘secret profits’, meaning money the agent is paid in addition to their agreed commission from the landlord, and which the landlord does not know about.
The CMA guidance says: “So, for example, you should tell the landlord of any sums you propose to charge potential tenants, and disclose any commissions or other benefits you receive from workmen for passing work on to them.”
Speaking to the Telegraph, landlord Dr Chris Townley said he is uncovering many cases of people who may have been overcharged.
He said he only discovered he had been charged £616 to repair a light fitting when he went through his paperwork, and then found the contractor had charged £412.50 for the job, with Foxtons adding on 33% in commission.
He said: “This behaviour is wrong, morally and legally. Foxtons has never apologised properly, they do not even think they have done anything wrong. I’m happy to carry on fighting and I hope it pushes them to change their behaviour.”
He said he decided to let his home through an agent for “peace of mind”, as it was his family home and he was spending some time abroad. He owns no other properties.
He chose Foxtons out of a shortlist of four agencies because Foxtons said they could let the house for £1,700. However, this never materialised. Instead, the rent was £1,400, and he was locked into an exclusive contract with Foxtons for three months.
He said: “I keep wondering what I could have done better to have stopped this happening to me. But when you go through an agent, you trust that they’re acting on your behalf. It seems stupid to have paid £600 to repair a light, but I thought they were replacing two lights and trusted the agency.”
Dr Townley also questioned whether his repair bill was high because the subcontractor had to pay Foxtons a commission to be chosen to carry out the work.
Dr Townley says he paid Foxtons 17% plus VAT to manage the property.