The way that estate agents charge commission on residential lettings could be dramatically overhauled after the Office of Fair Trading (OFT) began a legal case against Foxtons, claiming that 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 ended breached the Unfair Terms and Consumer Contract Regulations 1999, the same regulations that the watchdog is using to challenge high street banks' overdraft charges.

The regulator wants the court to issue an injunction, effectively ordering Foxtons to amend its terms and conditions.

The OFT believes that the practices used by Foxtons are “widespread” in the lettings industry.

If its case is successful, it said that it would pursue other agents that use the same terms.

The OFT has focused on Foxtons because it continues to charge commission on a property rental after a fixed tenancy period has ended, regardless of whether it helped to persuade the tenants to stay or is still actively involved with the property.

That means that 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 it is paid, will depend on the specific contract, but the OFT said that the basic principle is unfair, even if landlords know about and agree to it upfront.

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

Foxtons said it believed that the OFT was “fundamentally misconceived” but accepts that the issues raised are of relevance to the estate agency industry.

It added that it welcomed the opportunity to have a court clarify matters.

A spokesman for the Association of Residential Letting Agents (Arla), which represents more than 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 declined to comment on whether the terms and conditions used by Foxtons, which is not an Arla member, were “fair”.

Shilpa Lukka, a senior associate at the property consultancy King Sturge, defended the practice of charging after a fixed tenancy agreement has expired.

She 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.”

The Unfair Terms and Consumer Contract Regulations, which were introduced in the UK in 1999 after 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”.