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Duty - WHAT Duty?! Agent Fees Challenged

Duty - WHAT Duty?! Agent Fees Challenged

Introduction

Many will have seen the media coverage in June about a landlord’s unhappiness with the service provided by Foxtons Estate Agents. The landlord in question is now looking to take legal action against the company and the media claims that around 100 landlords have joined in the ‘class action’.

Briefly, the facts are that a contractor bill for £412.50 became a £616 charge for the landlord. This is a common enough situation (in principle if not in value), so what is all the fuss about?

Agency

The role of being an agent involves being able to commit your principal (landlord) to contracts with third parties, such as tenants or contractors. This places the agent in a position of trust and includes a number of specific duties around being an agent. It is unnecessary to state these in your terms of business; they will be implied into the relationship through the role of being an agent. For example, an agent acting lawfully and within his authority is presumed to be able to sign tenancy agreements on behalf of the landlord and this commits the landlord, not the agent, to the transaction.

With a landlord who may live thousands of miles away, such a powerful role carries with it significant responsibilities. For example, if an agent told the landlord the wall needed redecorating when it did not, the landlord might lose money doing work that was not required. It may even be fraudulent if the agent is keeping the money and no work is done.

Fiduciary duty

Owing to these responsibilities, the law places on the agent a ‘fiduciary duty’. Such a duty is all about loyalty to the landlord. In this context, it means looking out for the interests of the landlord and is best explained from a court case on the subject:

“The principal is entitled to the single-minded loyalty of the fiduciary. This core liability has several facets. The fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or for the benefit of a third person without the informed consent of his principal”.1
It must be fairly clear that charging a landlord more for work than the contractor does is not in the landlord’s best interest! Any possible excuse for such an action must therefore hinge on the last part of the quote and whether or not the agent obtained the “informed consent” of the landlord.

How much

For example, is saying you may receive commissions from contractors, enough to imply informed consent? Many readers may feel it is. But what if the bill from the contractor was £10 and the landlord was charged £1,000, would the landlord have accepted such an agreement ‘if he had known’ of such a high mark-up?

The example is deliberately extreme to make the point; however, every case with ambiguity will turn on its own facts. Conversely, if the agent says “we add a £20 handling charge to all invoices we pay on your behalf”, there would be informed consent if the landlord agreed due to the transparency of what was happening. Many cases, including the Foxtons one, fall somewhere in between.

Foxtons Estate Agents

Consumer rights

Foxtons’ website contains its standard terms of business and in the introduction it is explained that: “commission fees are set out in clauses 1.1 and 1.2 below”. Could this mislead landlords to think that only the fees listed in 1.1 and 1.2 are payable? Confusingly, the management fees are not listed until clause 2.1.

Clause 2.5.5 clarifies that if the cost of works exceeds £700, a charge of 12% incl. VAT will be levied. Finally, clause 3.3 sets out how commissions from contractors can be kept by Foxtons. (Note that this may be a different version to the terms that are being challenged.)

Conclusion

If it is true that the contractor’s bill was only for £412.50, then the money asked from the landlord may not be a commission paid to Foxtons by the contractor (out of the contractor’s income) but a charge to the landlord by Foxtons. This could make it unlawful and repayable.

Making a secret profit is considered such a significant offence that not only is the secret profit repayable but the landlord may be able to claim back all fees paid to the agent who, it is considered, has betrayed him so seriously.

To avoid this problem, make 100% sure you state clear simple fees in your terms of business

Reference:
1. Mothew (t/a Stapley & Co) v Bristol & West Building Society Respondant [1996] EWCA Civ 533 (24 July, 1996) www.bailii.org/ew/cases/EWCA/Civ/1996/533.html

© TFP Online Ltd. This article is from the July edition of the Letting Update Journal. If you’d like to know more about the journal please email info@tfponline.co.uk

Training for Professionals
Training For Professionals

Written by Training For Professionals

Source TFPonline.co.uk

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