The way estate agents charge commission on residential property lettings could be dramatically overhauled after the Office of Fair Trading (OFT) launched a legal case against Foxtons, claiming the agency's terms and conditions are unfair.

The OFT has asked the High Court to decide whether the way Foxtons continues to charge some landlords commission after a tenancy agreement has come to an end is in breach of the Unfair Terms and Consumer Contract Regulations 1999 — the same regulations that the watchdog is using to challenge high street banks' overdraft charges.

The OFT believes the practices used by Foxtons are “widespread” in the lettings industry. If its case is successful, the OFT has said it will pursue other agents that use the same terms. But it is likely that other agents would voluntarily change their terms and conditions to avoid legal action.

Foxtons continues to charge commission on a property rental after a fixed tenancy period has come to an end, regardless of whether it helped persuade the tenants to stay or is still actively involved with the property. That means if a landlord keeps the same tenants but switches to another estate agent to manage the property — or decides to do without an agent at all — he or she would still pay commission to Foxtons.

The exact amount of commission paid - and for how long - will depend on the specific contract but the principle the OFT are challenging is that Foxtons is able to continue charging after the contract has expired.

The OFT claims that is unfair. It is also challenging the agent's requirement that a landlord pay commission if he or she sells a property to tenants introduced by Foxtons once the tenancy has finished, regardless of whether the agency was involved in negotiating the sale.

In a statement, Foxtons said: "These issues are of great relevance to the estate agency industry as a whole. As the OFT have pointed out they are treating this as a test case; we welcome the opportunity to have a court clarify the matters raised by the OFT as we are of the opinion that they are fundamentally misconceived."

Defending the practice of charging after a fixed tenancy agreement has expired, Shilpa Lukka, a senior associate at property consultancy King Sturge, said: "The landlord is benefiting from rent from an applicant that an agent has introduced to them for a duration the tenant stays in a property."

A spokesman for the Association of Residential Letting Agents(ARLA), which represents over 2,000 letting agencies, said: “It is up to individual landlords and letting agents to negotiate terms.

“We insist that the terms are upfront and transparent but it is not our place to tell agents how to run their businesses,” the spokesman said.

The spokesman declined to comment on whether the terms and conditions used by Foxtons — which is not a member of the ARLA — were “fair”.

The Unfair Terms and Consumer Contract Regulations, which were introduced in the UK in 1999 following a European Union directive, are designed to protect consumers when they enter into contracts with businesses.

Under European law, the OFT has the power to challenge what it claims are “unfair” terms and conditions. That is defined as a term or condition that “causes a significant imbalance in the parties’ rights . . . to the detriment of consumers”.

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