commission - agency

          David Hornby


The fee or payment made to a real estate agent for services rendered, for example someone who hires an agent to sell their home pays the agent a commission. A real estate agent usually charges commission for services rendered. Normally the licensee deducts the commission from monies held on behalf of the vendor and the managing agent deducts commission from monies received for properties managed.

Commission is paid according to the terms of the agency agreement but typically, the agent receives commission if they introduces the successful buyer. The sale must be completed.

See:

sole agency

exclusive agency

sale price


RIGHT TO REIMBURSEMENT AND INDEMNITY

A principal is liable to reimburse his agent for expenses properly incurred by the agent in the course of the agency and to indemnify them against losses or liabilities incurred while performing his agency. This may be:

An agent is not entitled to reimbursement or indemnity if their losses or expenses arise out of:

The agent, where entitled to a reimbursement may either:


RIGHT TO A LIEN

Under general law an agent has a lien (a right to retain) property, goods or documents held on behalf of their principal until the payment of their proper remuneration (including commission). Therefore, a real estate agent who has received a deposit as stakeholder, on the sale of property has the right to retain their commission and may retain it out of the deposit after (not before) completion of the sale.

The agent should of course not take their commission until they have received the consent (preferably in writing) of both the vendor and the purchaser of the property.

To recover a disputed commission, the agent should first receive a judgment against their principal. They should then exercise their right as a judgment creditor against the deposit.


DAMAGES AND TAKING ACCOUNT

An agent may claim damages against their principal where there has been a wrongful termination of the agency agreement.Taking account will normally be done by proceedings before the supreme court so as to ascertain the true state of account between the principal and the agent.


RIGHT TO REMUNERATION - BASIC CONCEPTS

SOLE AGENCY

A sole agency involves the appointment of the agent as the sole agent to the exclusion of any other agent. This does not however, prevent the principal from acting on their own behalf ie to sell the property themselves.

EXCLUSIVE AGENCY

This confers a sole or exclusive right to act on behalf of the principal in certain circumstances to the exclusion of other agents as well as the principal themselves. In the ACT where a principal signs a sole agency agreement with the real estate agency, that sole Agency agreement fulfills the general law concept of an exclusive agency.

AGREEMENT

In determining what are the rights of the agent to commission, the first thing that must be considered is the terms of the agency agreement.

Gibbs J in L J Hooker Ltd v W. J Adams Estates Pt Ltd (1977) 138 CLR. 52 at 66:

The right of an agent to receive commission from his principal rests on contract express or implied.

It was made clear by the House of Lords in Luxor (Eastbourne) Ltd v Cooper (1941) AC 108 that commission contracts “are subject to no peculiar rules or principles of their own”. Where a vendor instructs an agent to sell their property or find a purchaser, unless the contract specifies otherwise, the agent is only entitled to their commission on the successful completion of the sale.

In Dennis Reed Ltd v Goody [1950] 2 KB 277 at 284 Denning LJ said:

When a house owner puts his house into the hands of an estate agent, the ordinary understanding is that the agent is only to receive a commission if he succeeds in affecting a sale; but if not, he is entitled to nothing. The agent in practice takes what is a business risk. He is entitled to commission if his introduction is the efficient cause in bringing about the sale but that does not mean that commission is payable at the moment of introduction, it is only payable on completion of the sale - - - He (the vendor) does not want a man who will only make an offer or sign a contract. He wants a purchaser able to purchase and able to complete as well.

Where commission is payable on completion of the sale, the vendor is entitled to withdraw the agent's instructions at any time up until a binding contract is entered into. Therefore, if two different agents where to find two different purchasers, the vendor is entitled to choose between the two prospective purchasers or to reject both without being liable to either agent for commission.

INTRODUCING A READY WILLING AND ABLE PURCHASER

As summarised by Cairns LJ in Christie Owen & Davies Ltd v Rapacioli [1974] 2 All ER 311:

There the vendor instructed his agents to sell a restaurant for 20,000 pounds. The agents were to be entitled to a commission, If they effected an introduction either directly or indirectly of a person ready, able and willing to purchase at 20,000 pounds or some other price acceptable to the vendor.

The vendor accepted an offer of 17,000 pounds. The purchaser signed a contract and paid a deposit. The vendor however, changed his mind as he had received a higher offer,

The court held that the agent was entitled to his commission as the agent had introduced a person who was able to purchase, expressed his willingness to purchase by making an unqualified offer within the terms authorised by the vendor and the vendor (not the purchaser) withdrew before exchange of agreements.

The agent must, however, show that the purchaser continues to be ready willing and able up to the time a valid binding contract would in the normal course of events be entered into by the vendor and purchaser or up until the time the vendor withdrew from the sale.

EFFECTIVE CAUSE OF SALE

There is a minimum amount of work that an agent must do so as to be entitled to their commission. Therefore, in L J Hooker Ltd v W J Adams Estates Pty Ltd (1977) 138 CLR 52 it was said “.. the commission is not fully earned unless there is a sale which has resulted wholly or partially from the efforts of the agent". In that case it was said that the mere introduction of a purchaser to the property will entitle the agent to commission even though the vendor was unaware of the introduction of the purchaser to the property.

Whether the agent is the "effective cause" of the sale is a question of fact (Burchell v Gowrie & Blockhouse Colleries Ltd [1910] AC 614):

Merely because the agent introduces a purchaser to the vendor or the property does not of itself and alone mean the agent was the effective cause of the sale.

In Moran v Hull (1967) 1 NSWLR 723 the agent introduced Musset to a property in January 1964. Mussett at that time was however not interested. In May 1964 Mussett again inspected the property. This time the vendor agreed to sell the property for 25,000 pounds on the basis of a first mortgage of 12,000 pounds (available), a second mortgage of 8,000 pounds (from the vendor) and 5,000 pounds cash by the purchaser.

The Court held that the "effective cause of sale" was the owners arrangement of finance and not the agent's intervention.

A DUTY TO PERFORM THE OBLIGATIONS IMPOSED UNDER THE AGENCY CONTRACT AND TO FOLLOW THEIR INSTRUCTIONS

An agent is liable for the loss suffered by his principal for failing to comply with their principal's instructions.

In Turpin v Bilton (1843) 134 ER 641 where an agent was instructed to insure a property, was liable to their principal when they failed to insure the property and it was damaged.

A DUTY TO PERFORM THEIR DUTIES WITH DUE CARE AND SKILL

An agent is bound to exercise such care and skill as is usual and reasonably necessary for the proper performance of their duties under the contract of agency. This may be expressly included in the contract or as an implied term (to be read into the agreement) as "there is undoubtedly an implied term as to competence arising from the nature of an agency contract and that would lead to a further implication that the (agent) should act promptly":

It was their (the real estate agents) duty to at least to see that an inadequate consideration was not accepted without advising as to values on a sale - How V Carman (1931) SASR 413


This doesn't mean that an agent would be liable for a slight difference between the sale price and the current market value but they would be if there is a large difference and the agent did not advised as to the current market value.

Failure to communicate a higher offer before exchange of contracts with a purchaser at a lower price will lead to the agent being liable to the vendor for the difference between the two offers and loss of commission - Kennel v Wheeler (1927) KB 577.

PERFORM DUTIES PERSONNALLY (NOT TO DELEGATE)

Delegation is only permitted where the agent has the Principal's actual or implied authority to do so.

ACT IN GOOD FAITH IN THE PRINCIPAL' S INTEREST

There is a fiduciary relationship between the principal and the agent so that there must be no actual or even potential conflict between the personal interests of the agent and their duty to his principal:

The rule of undivided loyalty is relentless and supreme - Cardozo J in Meinhard v Salmon (1928) 62 ALR 1.

A principal is entitled to "the disinterested skill, diligence and zeal of the agent for his exclusive benefit" Robinson v Mollett (1875) LR 7 HL 802.

EXAMPLES

The agent should disclose all offers to their principal unless instructed otherwise.  The agent should disclose to their principal matters which may affect the principal's judgment. In Georgieff v Athans & Anor (1981) 26 SASR 412 Walters S said:

.. (the) agent is bound to ascertain all available pertinent facts concerning the service or transaction he undertakes as agent.


- and in Fitzgerald v Metcalfe (1917) NZLR 486 Edwards S said:

Undoubtedly the duty of the (land agent), without any inquiry from the (vendor), (is) to communicate to him everything that (is) necessary to enable him to form his own judgement as to the capacity of (the purchaser) to complete the purchase.

- and in Gardiners (Stirling) Pty Ltd v Sutton (1984) SASR White S said:

The agent is also under a duty to inquire into and disclose any factors affecting the. suitability of the purchasers such as his ability not only to pay the deposit and any cash balance but also to arrange the necessary finance.


FULL DISCLOSURE OF ANY CONFLICT BETWEEN THE AGENT'S DUTY AND THEIR PERSONAL INTEREST MUST BE MADE TO THE PRINCIPAL AND THEIR INFORMED CONSENT OBTAINED

Where an agent acts for both parties to a transaction ie the vendor and purchaser or the lessor and lessee, must be disclosed to both parties - Fullwood v Hurley (1928) 1 KB 498 where it was said that it is permissible to act for both parties after both parties have full knowledge of that fact. A consequence of failure to inform both parties is the loss of commission and any loss suffered through their breach of duty.

It follows that an agent must not purchase property from their principal without a full disclosure of his interest to the principal. In Lowther v Lord Lowther (1806) 33 ER 230 it was said:

An agent to sell shall not convert himself into a purchaser unless he can make it perfectly clear that he furnished his employer (principal) with all the knowledge which he himself possessed.

In Lunghi v Sinclair (1966) WAR 172 Mr & Mrs Sinclair were in partnership. A vendor instructed them to sell vacant land for a minimum price of 200 pounds. Mrs Sinclair bought the land for 200 pounds without attempting to find another buyer. She then resold it for 850 pounds. The agents (both Mr & Mrs Sinclair) were made to account for the profit of 650 pounds and were disallowed their commission.

The agent should not make any secret commission or profit beyond their agreed commission. There are NSW and Commonwealth statutes dealing with secret commissions. A secret profit could include a bribe, a commission from a party to the transaction other than the principal (without the principal's knowledge and informed consent) and any other benefit from the agency over and above the agreed commission.

The case of Regal (Hastings) Ltd v Gulliver (1967) 2 AC 134 the House of Lords made it clear that an agent will be liable for a breach of duty even though he did not act dishonestly:

The rule of equity which insists on those, who by use of a fiduciary position make a profit, being liable to account for that profit in no way depends on fraud or absence of bona fides; or upon such questions or considerations as whether the profit would or should otherwise have gone to the plaintiff or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made. The profiteer, however honest and well intentioned, cannot escape the risk of being called upon to account - Lord Russell, at pp154-155.


Further, not to divulge confidential information acquired in the course of the agency and to keep clients money separate from the agents moneys and to account to their principal for moneys received or expended on their behalf.





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