Real Estate Investment, Development
and Finance Alert
13 September 2010
Author:
It’s Not Fair!
Neil A. Baylis
neil.baylis@klgates.com
+44(0)20.7360.8140
K&L Gates includes lawyers practicing out
of 36 offices located in North America,
Europe, Asia and the Middle East, and
represents numerous GLOBAL 500,
FORTUNE 100, and FTSE 100
corporations, in addition to growth and
middle market companies, entrepreneurs,
capital market participants and public
sector entities. For more information,
visit www.klgates.com.
In the latest of a number of recent consumer law investigations and cases
involving the property sector, a court has found a commission payment
provision to be unlawful under the Unfair Terms in Consumer Contracts
Regulations 1999 ("UTCCR").
The UTCCR states that certain provisions in consumer contracts are unlawful. A
consumer contract is any contract where one party is acting as a consumer, rather
than by way of trade or business. The word "contract" is interpreted broadly and
can include a lease or any contract for the sale or purchase of land.
Under the UTCCR, a contract term is unfair if "contrary to the requirement of good
faith, it causes a significant imbalance in the parties' rights and obligations arising
under the contract, to the detriment of the consumer". All the circumstances of the
case are relevant when making this assessment (Articles 5 and 6 UTCCR).
A contact term is also unfair if it is not in "plain intelligible language" (Article 7
UTCCR).
These provisions are enforced by the Office of Fair Trading ("OFT") which has
launched a number of high profile investigations and cases under the UTCCR,
including (a) retail bank overdraft charges (which the Supreme Court decided last
year did not infringe the UTCCR); (b) Foxtons' commission arrangements (where
the Court of Appeal found in the OFT's favour); and (c) the retirement homes
sector (where there was a successful challenge to McCarthy & Stone's transfer fees,
and on-going investigations into a number of other retirement home operators'
transfer fees).
In addition, any consumer who is party to a contract may bring a claim (or raise a
defence) based on the UTCCR in the civil courts.
The present case (Chesterton Global Ltd v The Waterfront Partnership and
Nicholas H Finney (2010, Lambeth County Court)) involved fees imposed by
Chesterton, a property letting agent. Under the terms of its contracts, landlords
were obliged to pay a fee of 10% of the total rent payable "at the commencement
of each tenancy and/or renewal". In practice, this meant a fee was due to
Chesterton: (a) when it found a tenant for the landlord's property; (b) when that
tenant renewed its tenancy at that property (and any subsequent renewal); and (c)
when the tenant "renewed" by taking up a tenancy at another property owned by
the landlord, even where Chesterton played no role in securing that tenancy.
When the tenant renewed its tenancy for a second time, Chesterton invoiced the
landlord for 10% of the rent payable (effectively the third invoice received by Mr
Finney from Chesterton in relation to that tenant). Mr Finney refused to pay and
Chesterton brought an action to recover the sums due. Mr Finney counterclaimed
for the sums already paid.
Real Estate Investment, Development and Finance Alert
Justice Wakem reached the following views:
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ƒ
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Mr Finney was a consumer
notwithstanding the fact that he owned
the property as a buy to let investment;
the word "renewal" lacked clarity and
failed to make it clear on its face that
there was a continuing liability to pay
the commission. The concept of a
"renewed tenancy" had no specific
legal meaning;
the obligation to pay potentially
indefinite renewal commissions was
unusually onerous and in the absence
of very clear language specifically
drawn to the consumer's attention was
to be seen as infringing the UTCCR;
and
the finding of illegality under the
UTCCR meant not only that future
payments would be unenforceable but
also that any prior payments were
recoverable by the landlord.
Accordingly the judge ordere
Chesterton to repay renewal
commissions already paid by Mr
Finney.
The case therefore gives rise to the potential
for claims to be brought by landlords against
Chesterton and other similar property letting
agents who have included renewal commission
fees in their contracts without drafting them in
clear language and drawing them to their
clients' attention.
More generally, the prospect of recovery for
past fees paid suggests that other firms in the
property industry who enter into contracts with
consumers should review those contracts for
compliance with the UTCCR. Given the value
of property assets to most consumers (whether
tenants, landlords or owner occupiers), the use
of unfair terms in the property sector will
continue to be of interest to the OFT and to
private litigators.
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13 September 2010
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