Estate Agents Lose Out In Commission Wrangle
By Roger Billins
If it was not bad enough for agents to be facing a major decline in the residential market, the Court of Appeal has recently dealt them another major blow by placing restrictions on their ability to earn commission. In October 2004 Mrs Bicknell retained Foxtons to sell her house as sole agents on their standard terms and conditions which included the usual provision that commission would become payable in the event that “at any time unconditional contracts are exchanged with a purchaser introduced by us during the period of our sole agency or with whom we have negotiations during that period, or with a purchaser introduced by or offering via another agent during that period.”
Foxtons introduced a Mr and Mrs Low to the property and, despite viewing it three times, decided not to proceed. Subsequently, Mrs Bicknell changed the basis of her instructions to Foxtons to a multiple agency and retained Hamptons, who sent the details to Mr and Mrs Low, who made an offer for the property through their agency. The offer was accepted, contracts exchanged and completion achieved. Mrs Bicknell paid commission to Hamptons. Foxtons heard about the sale and rendered their invoice to Mrs Bicknell who refused to pay it. Litigation commenced and the matter came before the Court of Appeal. The issue was the meaning of the words “a purchaser introduced by us”. Did that mean?
- A person who at some stage in the future becomes a purchaser (as suggested by Foxtons)?
- A person who becomes a purchaser as a result of our introduction so that the agent has to introduce the purchaser not merely to the property but to the particular purchase itself (as suggested by Mrs. Bicknell)?
The Court of Appeal preferred the latter option. As a matter of law, it was compatible with the legal principle that, to earn his commission, the agent should be the effective cause of the transaction in question. As a matter of policy, it would also make it much less likely that a client would have to pay two separate agents for the same deal. Agents are now bracing themselves for the possibility that disgruntled, double paying clients will seek to recover commission from an agent who was not the effective cause of the sale of their property.
© Davenport Lyons 2008. All rights reserved.
This document reflects the law and practice as at June 2008. It is general in nature, and does not purport in any way to be comprehensive or a substitute for specialist legal advice in individual circumstances.