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Be clear on selling fees

Katrine Sporle imageThis case concerns a dispute referred to The Property Ombudsman (TPO) from a landlord regarding the agent’s entitlement to a commission fee in respect of the sale of the property to the tenant.

Selling a property to a tenant imageThe landlord explained that the agent claimed a commission fee in respect of the sale of the property, despite not being formally instructed in connection with the sale. The landlord believed that the term within the letting agent’s Terms of Business, upon which they were seeking to rely, was unfair for the purposes of the Unfair Terms in Consumer Contracts Regulations 1999 (the Regulations) and as such could not be enforced.

The agent maintained that a commission fee was payable under their Terms of Business and said that this was explained to the landlord at an early stage in the transaction. The agent also advised that they were instructed by the landlord to approach the tenant and to negotiate the sale of the property on their behalf.

The Ombudsman’s view

The Ombudsman’s review explained that, at the time the landlord instructed the agent to let the property and signed the Terms of Business, the clause requiring them to pay a commission fee, in the event that the property was sold to the tenant, was acceptable. However, the judgement in Office of Fair Trading v Foxtons Ltd (2009), found such a clause to be unfair for the purposes of the Regulations. The OFT clarified that sales commission terms should not be used by other letting agents in their letting or management contracts.

The landlord proceeded with the transaction rather than placing the house on the open market, knowing that there would be a fee.

This position is reflected by the TPO Code of Practice, Paragraph 5j, which prohibits agents from requiring payment of a commission where the tenant agrees to purchase the property unless this is subject to a separate sales agreement. Consequently, it was discovered that the agent could not rely upon their Terms of Business to justify the commission fee claim. The matter was then whether the correspondence between the landlord and the agent at the time the sale of the property was being negotiated and agreed, was sufficient to constitute the provision of estate agency services and, therefore, an implied separate sales agreement.

The Landlord’s agreement

The Ombudsman noted that the landlord asked the agent to approach the tenant with regards to purchasing the property. The agent did so, and advised the landlord that the tenant would be willing to purchase the property for the sum requested. The agent confirmed that their fee, should the property be sold to the tenant, would be one per cent (plus VAT) of the sale price. The landlord queried that fee, making reference to an offer made on the agent’s website to sell properties for £500. The agent confirmed that the £500 fee would not apply to the sale of the property to the tenant, and reconfirmed the one per cent (plus VAT) fee. The next day, having raised no further queries regarding the commission fee, the landlord formally accepted, via the agent, the tenant’s offer.

It was clear to the Ombudsman that the landlord was aware, prior to accepting the tenant’s offer, that the agent intended to charge a commission fee. The landlord sought to negotiate that fee; however, the fee of one per cent (plus VAT) was reconfirmed to them.

The Ombudsman believed that the landlord formally accepted the tenant’s offer, fully aware of the fee that would be charged.

The landlord again asked the agent to reduce the fee to £500. The agent refused, but advised that they would reduce their fee to one per cent inclusive of VAT. The landlord raised a formal complaint about the fee; the agent confirmed that their fee for the sale would be one per cent of the sale price, inclusive of VAT if agreed prior to exchange of contracts, or plus VAT if the agent had to pursue payment of the fee.

It was again confirmed to the landlord prior to exchange, that the agent intended to claim one per cent (plus VAT) (unless the reduced fee was agreed to) upon the finalisation of the sale. The landlord proceeded with the transaction rather than placing the house on the open market, and it was reasonable to assume that they did so in the knowledge that they would incur a fee liability towards the agent who was under no obligation to acquiesce to their request that a reduced fee be charged.

The decision

Considering the information available, the landlord did instruct the agent to provide estate agency services to negotiate and secure the sale. While the agent’s role was limited, their actions in seeking and communicating the tenant’s offer, making recommendations as to a suitable solicitor to conduct the conveyancing, and issuing the memorandum of sale, were not actions that could be expected of a letting or managing agent. The agent made it clear to the landlord that they would charge one per cent (plus VAT) and it was on that basis that the sale was agreed.

Taking this all into account, the Ombudsman did not support this complaint and upheld the agent’s entitlement to the commission fee claimed.

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