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When Are You Entitled to a Commission?

When Are You Entitled to a Commission?

As real estate agents in both Queensland and New South Wales, you have undoubtedly entered into many contracts with people to help them sell their homes; and more often than not, that contract will involve an exclusive agency period. A recent Queensland case has explored the entitlement to a commission, but before we jump straight into that, we should re-cap the foundations of the principle first.

Whether the contract is entered into under the Property Occupations Act 2014 (Qld) or the Property, Stock and Business Agents Act 2002 (NSW) the Courts have interpreted the principles of exclusive agency in the same manner, so if you have a valid contract, and the question of whether you are entitled to a commission arises, there is a lot of commentary and guidance provided by the highest legal authorities in Australia.

Now, the basics, an exclusive agency period will allow you a set period of time to sell the house and be certain of receiving a commission, you receive your commission even if the owner finds the buyer themselves, or another agent finds a buyer. There is almost no question that you will receive your commission if the contract to sell the house is entered into during your exclusive agency period.

But, what if a contract to sell the house is entered into after your exclusive agency period has expired? This is where we must explore the principles of exclusive agency and what has become known as the “effective cause test”.

The basic structure of the effective cause test was explored by the High Court in LJ Hooker Ltd v WJ Adams Estates Pty Ltd [1977] 138 CLR 52. This case remains the starting point in all discussions on the effective cause test and that it is not simply that the buyer was introduced to the house by the agent, but that the effective cause of the sale was the agent. As per Justice Gibbs:

“the [agent] must also establish the necessary causal relationship between its actions and the sale, or in other words, that the sale was brought about through its agency.”

So it is fair to say that if a buyer sees your signs outside the house and nothing more, then you are not the effective cause of the sale.

But, is there a definite hurdle that you must cross in order to ensure your commission? Sadly, the answer is no, the entitlement to commission will depend on the facts of the individual matter and the performance of the individual agent. Many different sets of facts have been explored by the Courts so that we are able to gain some idea of the meaning of the effective cause test.

In Moneywood Pty Ltd v Salamon Nominees Pty Ltd (2001) NSW ConvR 55-978, the agent introduced the purchaser to the vendor and the property, a contract was entered into subject to Council’s rezoning of the land. When the rezoning did not happen, that contract was rescinded and a second contract entered into for a lesser amount, but otherwise retaining the basic framework of the first contract. This contract sought to exclude the agent and their right to commission. The Court found that the framework for the deal in the second contract was the same as that in the first contract. The difference was that a lesser price was achieved and the contract was not subject to rezoning. This was sufficient causation between the agent’s deal making and the sale.

A contrary outcome eventuated in Rasmussen & Russo Pty Ltd v Gaviglio [1982) Qd R 571, where the agent introduced the purchaser to the vendor and the property and a contract was entered into subject to the purchaser obtaining finance. This contract was rescinded because the purchaser was unable to obtain finance from his broker. Subsequently, a second contract was entered into with a different agent who assisted the purchaser to obtain finance through a broker that was only available to the purchaser through this agent. The Court found that the work of the first agent here was not sufficient causation between the agent’s deal making and the sale.

Now for the recent case of West Property Solutions t/as West Property Group v Lewis & Anor [2015] QCATA 42 & 66. This case really serves as a re-affirmation of sorts of LJ Hooker v WJ Adams Estates in that the proper test is the effective cause test and not any variation thereof, such as a break in nexus.

In this case, the agent introduced the purchaser to the vendor and the property. The terms of the contract were negotiated through the agent, but a contract was never dated. About a month after the first agent’s exclusive agency period expired, a second agent negotiated with the purchasers to sign the contract, but the contract was in an essentially identical form to that negotiated by the first agent.

At first instance, the Queensland Civil and Administrative Tribunal (“QCAT”) found that there was not a sufficient nexus between the first agent and the sale so as to entitle the first agent to a commission. They were of the opinion that there was a break in negotiations with the purchasers not even sure if they wanted to buy the property for that period of roughly one month.

On appeal, the QCAT Appeal Tribunal found that this test was not correct; the correct test was the effective cause test as in LJ Hooker v WJ Adams Estates. In other words, the question is not whether the nexus of the first agent is broken prior to the sale, but whether there is sufficient causation between the first agent and the sale. It is irrelevant that the sale process was broken by the second agent; if the hard work in negotiating was done by the agent introducing the purchaser to the property, then it is arguable that the first agent is the effective cause of the sale.

The contract procured by the second agent was almost identical to that negotiated by the first agent, this was enough for the QCAT Appeal Tribunal to find in favour of the first agent and award the commission.

As you can see, the waters on the effective cause of sale can be muddy, there is no simple legal barrier to cross, but the question will rely on the facts, and we believe that the effective cause test protects agents who put in the hard work in getting a deal done from missing out on their commission.

At Attwood Marshall Lawyers our experienced Property and Commercial team are here to help you through this process. If you require assistance in relation to this blog or buying or selling in NSW or QLD, please contact our department manager Holly Gilholme on 07 5506 8202 or email hgilholme@attwoodmarshall.com.au for a free quote today.

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Barry van Heerden

Barry van Heerden

  • Partner
  • Property and Commercial
  • Direct line: (07) 5506 8248
  • Mobile: 0403 452 455