Estate agents have not fared well in the courts over
the last year or so where they have sued for their
commission. An agent might feel that clients are
avoiding payment of commission ‘on a technicality’.In the most recent case of Estafnous v LLBC Limited (2009
EWHC 1308) the agent agreed a fee of £2,000,000 for introducing
a buyer to purchase a large property in Central London. He even
obtained a solicitor’s undertaking to pay his fees on completion.
The problem was that the nature of the deal changed and although
the buyer was looking at acquiring the property, it eventually,
instead, acquired the shares in the ultimate holding company of the
property owner; so only acquired the property indirectly. Whilst
the judge found that the agent had introduced the property to the
purchaser, the commission
agreement did not cover the
eventuality of a purchase of
the shares in a company rather
than a property. The agent
therefore lost his claim.
Looking at this case in the
context of two other fairly
recent cases, in MSM
Consulting Ltd v United
Republic of Tanzania (2009
EWHC 121) the agent claimed
they had been instructed by the
United Republic of Tanzania to
find new premises for the
Tanzanian High Commission. The agent carried out a lot of
preliminary work, finding a suitable property, arranging viewings
etc. Unfortunately he was unable to prove that there was a
concluded agreement to pay commission. They were not entitled
to be paid on a quantum merit basis (“As much as is deserved.” In
contract law, the law infers a promise to pay a reasonable amount
for labour and materials furnished, even in the absence of a specific
legally enforceable agreement between the parties) as the Judge
held that this was simply in expectation that they would at some
stage be given a formal mandate. There was also an issue as to
whether, even though the agent found the premises, they were the
effective cause of the purchase.
Foxtons v Pelkey Bignell (2008 EWCA Civ 419) is well known;
Foxtons were appointed sole agent for the sale of a residential
property. A prospective buyer viewed the property through them
but did not make any offer. The sole agency was terminated and the property remarketed on a multi-agency basis. The prospective
buyer then re-viewed the property and made a successful offer
through another agent who received a commission. Foxtons sued
the seller on the basis that they had introduced the purchaser.
This scenario occurs much more often than one might expect.
The Court of Appeal held that Foxtons were not entitled to a
commission – the key point was that it was necessary to introduce
the purchaser to the purchase and not merely to the property,
ie to be instrumental in bringing the purchaser to the eventual
transaction. Foxton’s terms of business were ambiguous and did
not cover this situation. There are common themes. In all cases
there was another agent entitled to commission and the courts do
not like clients having to pay double commission. In all cases there
was a problem with the contract or lack of one. In the Estafanous
case the terms did not cover the
purchase of shares in a company,
in MSM Consulting there was
no contract at all, and in Foxtons,
there was room for ambiguity.
SO WHAT ARE THE LESSONS?• Clearly there should be a
written contract. Whilst this
will not be an issue for most
firms, it may be for smaller
independents or those involved
in ad hoc transactions where
preliminary work is undertaken
in the hope of obtaining a
mandate. Estate agent’s commission agreements do need to
contain required information under the Estate Agents Act 1989.
• Any contract needs to be carefully drafted to make sure that
it covers all circumstances under which commission should be
payable. Whilst someone buying the shares in a company to
acquire the property rather than the property itself may be
infrequent, this does happen and it is worth defi ning what the
agent needs to do to be entitled to commission.
• There is a better chance of a commission claim being
successful if the terms of business are seen to be reasonable.
Christopher Sykes, senior partner, Sykes Anderson LLP and author of the
Law Society’s book Leasehold Enfranchisement and the Right to Manage.
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