The battle over agency commission
Life for property agents, both residential and commercial, is tough – the recession has caused a significant slow down in the property market and the pressure is on to earn and collect commission.
To make matters even tougher, agents are likely to see a much greater change to the deal terms so that the actual transaction that takes place can be fundamentally different from the one envisaged at the outset, a factor which can put commission recovery in even more jeopardy. Agents will be experiencing sellers becoming insolvent, for example, before the transaction is completed, changes in property prices and even changes in parties. All of which makes commission recovery a real battle.
Maximising commission recovery - Top Tips
- Agree written contractual terms detailing when commission is payable and establishing that a contract actually exists between the buyer or seller and the agent. If there is no contract, no fee is payable to the agent!
- Check that the statutory requirements have been complied with otherwise the contract may be unenforceable.
A note of caution - whether the transaction is commercial or residential and whether the agent is acting for the buyer or the seller, the provisions of the Estate Agents Act 1979 and the Estate Agents (Provision of Information) Regulations 1991 will apply to the agency contract so that, for example, definitions such as “sole agency” must be clearly defined and details of the agent’s remuneration must be set out, including how it is calculated and the circumstances in which it will become payable. If the Regulations are not complied with, the Court may well hold that an agent is not entitled to recover its fees.
- “Effective cause”. For the agent to be entitled to a commission payment the agent must show that they were the effective cause of the transaction that has completed (unless there is a very clear exclusion clause) i.e. demonstrate that the commission has been earned as a result of the agent’s activities.
The immediate difficulty is when one or more agent is involved, or there is a change of identity of parties:
MSM Consulting Limited v United Republic of Tanzania : MSM claimed commission on the £6m purchase of a property in London having introduced the purchasers, representatives of Tanzania, to the property and having conducted viewings and provided agency terms (which were not signed) and discussed the property with them over a 2 year period. Knight Frank ultimately achieved a sale of the property to the same buyer and were paid commission, MSM were not.
The High Court held that MSM were not entitled to commission; their activities constituted attempts to win a contract and that their work was done in the expectation of winning that contract.
- Keep an eye on the parties!It becomes increasingly difficult for an agent to show that they are the “effective cause” of the transaction where terms, parties or nature of the transaction changes.
Christie Owen & Davies Plc v Raobgle Trust Corporation :The sole selling agent introduced Mr K as a buyer for a property in Weston-Super-Mare but funding issues stalled the transaction. The property was eventually sold to Mr P. At the time that the sale agreement was concluded, Mr P intended to go into partnership with Mr K and develop and run the property as a commercial venture (which they subsequently did). The Court held that the Partnership was liable to pay commission to the agent because the definition of the “purchaser” in the agent’s contract included anyone acting on behalf of the eventual purchaser and therefore was wide enough to include Mr P acting on behalf of the unformed partnership.
THRINGS RECOVERIES has significant experience in advising and assisting agents in the recovery of their professional charges under a competitive fixed fee charging structure. The team also has experienced litigators able to deal with complex contractual litigation.
Please contact Ramona Derbyshire.