Estate agents commission

Citation

(1998), "Estate agents commission", Property Management, Vol. 16 No. 1. https://doi.org/10.1108/pm.1998.11316aab.015

Estate agents commission

Estate agents commission

Two recent cases in the Court of Appeal illustrate the difficulties that can be faced by intermediaries in the commercial property world. They are often not established agency firms but persons who hope to make their money by learning of properties that are for sale and of persons who are seeking properties and bringing the two together. Commission is then open to negotiation with either party if the efforts bring about a transaction. Clearly such loose "agreements" can pose problems when a claim for commission is made.

Full reports of the two cases are not available but there is sufficient information to draw some conclusions. The first case is that of Freedman v. Union Group plc [1997] EGCS 28. On learning that the defendant public company wished to dispose of a commercial property in the City of London, the plaintiff, a property consultant, approached the managing director of the company offering to introduce a prospective purchaser in return for a fee of 1 per cent of the sale price. The offer was accepted and a deal, but not a sale, was negotiated between the parties. The arrangement was that the "purchaser" would take over the defendant company through the acquisition of its shares. When he heard of this deal the plaintiff sought confirmation that if the "anticipated transaction" took place he would be entitled to commission of £25,000. This was agreed but when the plaintiff claimed the commission the new owners of the company denied any liability to pay the plaintiff's commission, whereon he sued.

Both the Court of Appeal and the trial judge agreed that there was no liability to commission under the original agreement because the stipulated commission earning event, i.e. a sale, had not occurred. However, the trial judge and the Court of Appeal disagreed over the interpretation of the later commission agreement. According to the trial judge this was merely a variation of the amount of commission. The Court of Appeal disagreed ruling that the "anticipated agreement" mentioned in the letter must have been a reference to the share transaction that actually took place. The defendants then claimed that even if this were so the second agreement was not supported by consideration since by this time the parties had already been introduced thus the introduction was past consideration and not good consideration. The Court of Appeal however, found sufficient consideration in the plaintiff's forbearance to sue on the original agreement even though such action would have had little chance of success. All that was necessary for consideration was that the plaintiff had a "bona fide belief in the rightness of his claim" which he was prepared to forgo.

A further argument put forward by the defence was that the plaintiff was not the effective cause of the commission earning event since he played no part in bringing about the take over. This argument was accepted by the trial judge but not by the Court of Appeal. Their Lordships looked at the wording of the revised agreement in the letter and concluded that since it envisaged no further action by the plaintiff the effective cause requirement must have been impliedly excluded. Thus the plaintiff succeeded in his claim for commission.

The question of effective cause arose again in the case of Raja v. Rollerby Ltd [1997] EGCS 79. The defendant company invited a number of intermediaries to procure offers of around £750,000 for its property. None of the intermediaries was formally appointed as an agent. The plaintiff property consultant introduced a company named SAR Properties Ltd and the defendant company wrote to the consultant that if the property was sold to SAR Ltd his commission would be 2 per cent. The sale went through but when the plaintiff submitted his claim for commission the defendant denied any liability on the ground that the plaintiff was not the effective cause of the sale. They claimed that SAR had in fact been introduced to them two days earlier than the plaintiff's introduction by another property consultant and it was this earlier introduction that led to the sale. The trial judge accepted this argument.

However, it was revealed that when the property consultant made the first introduction he did so on his own account as a purchaser, not as an agent. He was intending to re-sell the property to SAR. This enabled the Court of Appeal to distinguish the case from the normal cases where two agents have introduced the same client. Thus the court was able to find the plaintiff entitled to his commission on the ground that he had done exactly what the defendant's letter required of him.

The obvious lesson to be learned from these two cases is that the agent's commission will always depend on the terms of the agreement between the two parties.