Foxtons estate agents is being taken to court by the Office of Fair Trading following complaints about its contract terms for landlords.
The consumer watchdog says the terms in the London estate agent’s letting agreements are unfair, because they leave landlords at risk of paying out “substantial” sums in commission even after they stop using the services it offers.
The terms mean that landlords may still have to pay Foxtons when tenants remain in a property beyond their initial contract period, even if the estate agent plays no part in persuading them to stay, and no longer collects their rent or manages the property.
The OFT has now issued High Court proceedings against Foxtons and is also seeking an injunction to stop it from using the terms. If the case is successful, letting agents across the country may be forced to amend the terms of their contracts.
It is estimated that there are at least 15,000 letting agencies in the UK, including a number of national and multi-national companies in addition to many smaller businesses. Foxtons says it currently manages around 4,000 properties for clients in London and the South-East.
This isn't the first time Foxtons has come under the spotlight for the way its business and agents operate. Back in 2006, undercover reporters from the BBC’s Whistleblower programme discovered agents at Foxtons were lying about the value of properties and faking signatures on mortgage documents.
The estate agency is contesting the OFT’s court case as it believes its terms are fair.
A spokeswoman says: "We welcome the opportunity to have a court clarify the matters raised by the OFT as we are of the opinion that it is fundamentally misconceived."
Malcolm Harrison, of the Association of Residential Letting Agents (ARLA), said landlords should check contracts carefully when they appoint a letting agent to ensure they are totally happy with the terms.
He added: “This case could rumble on and the industry will be watching it with interest. But in many cases, agents continue to work on behalf of the agent so this doesn’t apply.
“ARLA’s biggest concern is that letting agents are transparent about their terms. Landlords should be clear about what they are signing.”
As well as ensuring letting contracts with estate agents meet their needs, buy-to-let investors should also be proactive about their tax obligations in light of a crackdown by HM Revenue & Customs.
Read our article on tax obligations of property investors and people with second homes.