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Entitlements to commission – Does introducing a property to a potential buyer create an effective cause of sale?

Real estate agent showing buyers a home. If the buyers purchase the property the real estate agent must show they are the effective cause of sale to earn their commission.

To be entitled to commission on the sale of a property, Real Estate Agents must show they are the effective cause of sale, explains Property and Commercial Lawyer, Raphaelle Worrall. Disputes often arise where agents who have introduced a property to the buyer believe the sale is theirs to claim. However, introducing the buyer to the property does not necessarily demonstrate an effective cause.

Proving effective cause of sale

To establish that an agent was the effective cause of sale, it is necessary for the agent to prove that there was a causal connection between the agents’ efforts and the completion of the transaction. In LJ Hooker Ltd v WJ Adams Estates Pty Ltd,  Jacobs J said:

“Effective cause” means more than simply “cause”. The inquiry is whether the actions of the agent really brought about the relation of buyer and seller and it is seldom conclusive that there were other events which could each be described as a cause of the ensuing sale. The factual inquiry is whether a sale is really brought about by the act of the agent.”

Case Study 1

In the recent case of Outerbridge trading as Century 21 Plateau Lifestyle Real Estate v Hall [2020] NSWCA, an agent (first agent) entered into a non-exclusive agency agreement that conferred a right to be paid commission where the agent is found be “the effective cause of the sale” and if a buyer “has been effectively introduced” by them. Another agent (second agent) had also entered into a non-exclusive agency agreement for the sale of the property with the sellers.

The eventual buyer was introduced to the property by the first agent.

Their initial offer was rejected, and a further offer was made and accepted by the sellers. After the offer was accepted the sellers withdrew their acceptance as they believed the offer was too low. The buyer made further attempts to arrange a meeting with the sellers through the agent to renegotiate the purchase price. The buyer’s efforts were futile after being informed the agent went overseas and would return in a few weeks’ time.

The buyer contacted the second agent who was able to secure an offer of just over $400,000 more than the price agreement had previously reached. The sellers accepted the offer and the sale was completed.

The first agent sought recovery of the commission arguing that they were the effective cause of the sale. The claim was dismissed – and the first agent appealed the decision. The issue for the appeal court was determining if the first agent was the effective cause of the sale of the property.

The court found that mere introduction of the buyer to the property is insufficient to amount to an effective cause of sale.

The issues on appeal were:

  • Whether the primary judge wrongly considered that the appellants’ contention was an effective cause of the sale was necessarily inconsistent with the second agent being an effective cause of the sale.

It was held while the actions of more than one agent can answer the description of an “effective cause” of the sale of a property, a consideration of whether the first agent’s conduct was the effective cause of the sale required a consideration of factors external to him that brought about the sale, including the conduct of the second agent.

  • Whether the primary judge erred in equating the importance of procuring finance with the task of providing the clarification on price desired by the buyer.

The appeal judge held that the primary judge did not treat the conduct of the second agent in securing the sale of the property as akin to the task of arranging finance. The task of providing clarification to the buyer was referred to as part of the explanation of how a transaction was effectively over after the first agent departed on holiday.

  • Whether the primary judge erred in failing to consider whether the task of negotiating a sale could have been undertaken by the first agent.

It was held the primary judge did not fail to give consideration to whether the task of negotiating the sale could have been undertaken by the first agent in circumstances where he was not capable of providing the buyer with any clarification of the respondents’ price expectations because he was overseas and effectively uncontactable.

  • Whether the primary judge’s finding that the appellants were not the effective cause of the sale of the property was contrary to the weight of the evidence.

A determination of effective cause requires a consideration and evaluation of all the circumstances surrounding a sale. The mere introduction of a buyer that creates their interest in a property is usually, or at least sometimes, insufficient to be an effective cause. In this case the potential for a sale was effectively extinguished when the first agent departed overseas and became uncontactable. It was the second agent who revived and completed the sale.

Case Study 2

In the case of Urban Property Agents Pty Ltd v Vann & Anor [2020] QDC 226, it was found the agent was not the effective cause of sale of the property after commencing proceedings against the sellers for commission alleged to be owing pursuant to an agency agreement.

The agent had introduced the buyers to the property by conducting an open home and then going on to arrange a second private inspection. The agent prepared a contract of sale and had it delivered to the buyers, however it was held by the magistrate that those actions did not flow through to the actual sale of the property.

The agent and sellers reached a critical impasse when the sellers refused to enter a contract subject to the sale of the buyer’s property.

The agent confirmed that they did not attempt to make the sale of the property unconditional by seeking buyers for the buyer’s sale property. It appears that when the agent informed the sellers of the potential contract as a result of his discussions with the buyers, and the respondents openly refused a contract on the terms proposed, this event effectively broke the causal connection between the efforts of agent and the eventual sale.

The agent was held not to have been the effective cause of the sale of the property and commission was not payable.

Furthermore, evidence established that a second agent was the effective cause of sale of the property. The magistrate found that the second agent intervened at the impasse between the first agent and the sellers, realising that a buyer had to be found for the buyer’s property before the respondents would be willing to accept a contract for sale. The second agent obtained an agency agreement with the buyers to sell their property and within days had found and secured a buyer for the buyer’s property. The second agent then negotiated with the buyers and the sellers to an agreeable settlement date and purchase price. The intervening actions and subsequent efforts of the second agent resulted in the actual sale and was found to be the effective cause of sale.

Conclusion

Introducing a buyer to the seller, which results in a subsequent contract of sale, is not enough to prove effective cause of the sale.  It must be established that the agent was ‘an effective cause of the sale’ and the agent bears the onus of proving they were ‘the’, or, ‘an’ effective cause of the transaction.

Determining you are the effective cause of sale will always involve the terms of the agency agreement and the actual events of introduction, negotiations, offers and acceptance. Whilst the court can draw inferences from certain facts, ultimately the agent must prove their case and have enough evidence to show they were the effective cause of the sale.

How can Attwood Marshall Lawyers help?

If you feel you have unfairly missed out on commission, Attwood Marshall Lawyers can assist you in determining your rights. Speak to an experienced solicitor to obtain legal advice before forsaking any claim for commission.

Attwood Marshall Lawyers are positioned right on the border, with offices at Robina Town Centre, Coolangatta, Brisbane and Kingscliff. Our team can assist agents, buyers and sellers with residential homes and investment properties in both Queensland and New South Wales.

Attwood Marshall Lawyers are a leading Property Law firm. For legal help with a conveyance or property matter, contact Property and Commercial Department Manager, Jess Kimpton on 07 5506 8214 or email jkimpton@attwoodmarshall.com.au today.

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Raphaelle Worrall

Raphaelle Worrall

  • QLD Property Law Paralegal/Law Graduate