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.
Comments (10)
I got wood every time Foxtons has bad press and now finally getting a nod from PIE, dude there’s three minutes in the diary with my name on it. Awesome.
So getting paid on the backend was always going to raise the price of works but is there a reasonable kickback we can get or should we be doing it at all? I’m not trying to be a d*ck about it but maybe its better to cover your a*se with a higher management fee, oh wait Foxtons already do. Ok I’m being a d*ck but hear me out, I’ve got conflicts too. Right now I’m trying to have a more professional relationship with my administrator…or else I gotta fire her. Dude if their management fee already includes arranging repairs & management then what the h*ll. Jeez if we’re going to do this, if we’re going to get referral fees then you have to figure we tell it it better than Foxtons clause 3.3. I’m guessing landlords won’t be happy paying it when they really understand it.
what is ARLA doing to proactivley stop this practise?
Is the problem not deeper than ARLA? – they are only a voluntary body
In my limited experience, ARLA do nothing ‘proactively’ other than try to sell more expensive window stickers and issue press releases saying how good their members are 🙂
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 that’s how it happens. Foxtons, and some others like them, feed on the blind greed of some landlords.
Landlords: DO YOUR HOMEWORK. CHOOSING A LETTING AGENT IS THE MOST IMPORTANT THING YOU DO WHEN LETTING OUT YOUR PROPERTY.
Landlords who look for nothing more than the agent who quotes the highest rent and/or lowest fee are probably going to end up with less income at the end of each year.
Unfortuantley its human nature to go for the higher option, in sales as well. In most cases an extra 25k on an asking price is similar to a years wages. Some you can reason with many you cant. The way we deal with it if another agent tops the price is say we will give it a go and review in four weeks, if no viewings or the feedback is that its too high you will have to reduce, most vendors agree with this. I guess the same could be used in lettings?
Yes, same principles often apply in lettings. My point is that landlords need to be more ‘savvy’. The best agent is probably not the one who quotes the numbers you like hearing; it’s the one who will do the job properly, every day.
You and I know that, trying to persuade the public of that is another matter 😉
I can hear it now. an unsolicited call from a private number (PPI) style
I answer “hello”
The automated voice says. ” have you recently been charged work by your letting agent for repairs you thought where the correct price. You could be entitled to thIusands in compensation
Nnnnnnooooooooooooo
If Foxtons have marked up prices then that’s criminal and an example should be made of them. If Foxtons however get commission from tradesmen then that’s shameful. In terms of PR It’s a stain in the carpet that may not come out. If they got authorisation from the landlord tough cheddar Mr Day. As I’m pretty sure if they followed the ombudsmen a guidelines they would have declared in their T&Cs that they receive third party payments,
I am really pleased this has come to light. Being a partner in our lettings business, we pride ourselves, in not making secret profit. I have always been disgusted at this common place practice, in our industry. I know for a fact that Foxtons are not the only agents that do this. In Plymouth i know of many agents who charge between 5% and 25% on top of their fees. With many contrcators not even being paid, as there seems to be more exscuses. Its about time our industry was cleaned up, to stop ripping off the public!