To safeguard your entitlement to commission on a property sale, ensure you follow these handy tips, writes Property Lawyer, Raphaelle Worrall.
During your career as a real estate agent, you have undoubtedly encountered at least one instance in which your entitlement to commission has been called into question. It may often feel like sellers are willing to clutch at anything to try to reduce or wipe out your right to commission. There is also the plethora of online-based agencies, without the traditional overhead costs to consider, offering fixed or discounted commission rates. We understand this is making it more common for commission percentages to be negotiated to a fraction of what they once were. It seems all traditional fees are being commoditised in the property industry, generally. With this in mind, you want to ensure you have the best chance to receive the commission you have worked so hard for. It is imperative for you to consider the steps you can take in order to safeguard your commission and avoid disputes with your sellers.
You are the ‘effective cause of sale’ – but have you obtained a ‘valid appointment’?
Queensland – Form 6
Pursuant to Section 102 of the Property Occupations Act, you must ensure you are duly appointed by the seller as the property agent in writing by way of a completed and signed Form 6. What you may not be aware of are the consequences an improperly completed appointment form may have on your entitlement to commission.
We are regularly engaged by our clients to peruse the Form 6 on their behalf prior to them finalising the appointment an agent for the sale of their property. Our property team have found many of the forms we review to be poorly drafted or not completed correctly.
We often find sections of the form are left blank, such as the complete description of the property, the end date of a single appointment, the price, and most surprisingly, the amount of the commission!
Whilst the completion of a form to be appointed seems relatively straight forward there have been cases where an improperly completed form have caused headaches for agents, including significant legal costs and forfeiture of commission.
Case 1 – Yong Internationals Pty Ltd v Gibbs & Ors
For those of you who entered the industry after 2016, you may not be aware of the Form 6 was the Property Agents and Motor Dealers Act Form 22a prior to 2016. In Yong Internationals Pty Ltd v Gibbs & Ors , an agent’s Form 22a was scrutinised by the Supreme Court of Queensland. It was concluded the Form 22a was improperly completed and therefore invalid.
The agent had failed to complete section 4.1 ‘Appointment of Agent’ of the Form 22a (now part 4, section 1 of the Form 6). This section should have detailed what the agent was appointed to do, i.e. perform a service in the sale or purchase of a property and state any restrictions to the appointment. The court held that as the form had not been properly competed, the agent had not been validly appointed and therefore was not entitled to recover any of the $226,139.00 in commission the agent sought.
Case 2 – Hudson v Stanfield
In Hudson v Stanfield , the Court held the Form 22a was ineffective as the agent failed to bring to the seller’s attention information contained within Part 5 of the Form 22a (now Part 6 of the Form 6) regarding the effect of an open listing, exclusive agency or sole agency. The agent’s failure to do this was found to be a contravention of sections 123A and 135 of the Property Agents and Motor Dealers Act. As a result of this, the agent’s appointment was deemed to be ineffective.
It is worth noting the agent’s lack of entitlement to commission in this matter was found to be due to a Buyer’s breach of Contract rather than a mutual agreement to terminate the Contract as the agent argued. However, due to the agent’s failure to highlight the effects of Part 5 of the Form 22a, the agent’s entitlement to commission would have failed in any event.
These two cases demonstrate that an agent’s entitlement to commission will always be determined once the facts of each case are considered. Property transactions can be unpredictable by nature and in order to ensure you have the best chance of recovering your commission, you should treat the completion of each Form 6 as if it were going to come under the scrutiny of the Court. It is pivotal and simple, yet often overlooked.
New South Wales – Agency Agreement
Across the border, an agent cannot make a claim for commission unless a written agency agreement has been finalised. Whilst New South Wales does not have a uniform agreement, section 55 of the Property Stock, and Business Agents Act sets strict guidelines to be adhered to, including:
- The agreement must be in writing;
- It must be signed by the licensee and the client;
- The agreement must contain all the terms required by the Property, Stock and Business Agents Regulation; and
- A copy of the fully executed agreement is served upon the client within 48 hours of signing by the licensee.
You must also ensure you disclose all rebates, discounts and commission which will be received by you in relation to any expenses which are payable by the client under the agreement.
Section 55 is quite strict in restricting agents from claim commission unless these requirements have been adhered to.
Effective Cause of Sale
In Outerbridge trading as Century 21 Plateau Lifestyle Real Estate v Hall [a dispute arose between the plaintiff (real estate agent) and defendant (seller) as to whether the plaintiff constituted “the effective cause of the sale” within Clause 3.1 of the Agency Agreement. The real estate agent argued the Buyer was “effectively introduced” to the seller and the property by the agent during the agency period under the Agency Agreement. However, the sellers submitted the effective cause of the sale was the effort of an agent from another agency who obtained a clarification of the seller’s position and negotiated an increase in the purchase price.
The facts of the case were considered and it was found that although the real estate agent played a very significant causal role in relation to the buyer purchasing the property by introducing the buyer to the property, providing substantial information to the in relation to the property, taking the buyer through an inspection of the Property, the real estate agent did not bring about a state of affairs giving rise to the contractual right to the commission and it was held they were not the effective cause of the sale.
In this case, although the real estate agent had introduced the Buyer to the seller and the property, it was the crucial intervention of the third party agent who provided the clarification of the seller’s position to the buyer and vice versa and allowed the buyer to consider and make a higher offer which took into account the defendants’ desired sale price.
How can Attwood Marshall Lawyers help?
To ensure a smooth transaction with your seller, it is paramount to have a professional and experienced firm handle the transaction. Attwood Marshall Lawyers are the leading conveyancing and property law firm on the Gold Coast and Northern NSW, providing knowledgeable advice and exceptional client service. Please contact our office with any legal questions in regards to the completion of your listing agreements/Form6 to ensure all the documents involved in your property transaction have been attended to in a professional manner. For legal help with a dispute over commission, contact our commercial litigation department.