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Estate Agent and Recruitment Agent Commission Disputes

Estate agents and recruitment consultants are two of the most common types of agents that are paid based on commission for their assistance in a transaction, whether that is the sale of a home or the placement of a candidate.

Estate agents and recruiters are known as ‘introductory agents’ under English law. In short, they are appointed by a principal to find buyers for a home or candidates for a job. They do not have authority to enter into contracts on behalf of their client. There are many other professions that also operate on an introductory agent model such as modelling agencies.

Disputes commonly arise over the agent’s fees. This is particularly the case where the principal instructs multiple agents and it can be difficult to ascertain who should and should not be paid.

The following factors need to be considered when deciding whether the introductory agent is due their commission fee:

  1. Are the agent’s terms and conditions binding?
  2. Where the agent’s actions the “effective cause” of the sale/ recruitment?
  3. Do the agent’s terms and conditions override the law on “effective cause”

1. Are the agent’s terms and conditions binding?

If the agent wants to incorporate their standard terms and conditions into a contract, they must provide the principal with a reasonable opportunity to read the terms and conditions. Further, it is important that the terms and conditions are provided before the contract is made. For example, terms printed on or referred to in an invoice will normally arrive after the contract is made and therefore will not be binding.

If terms and conditions are signed, then it will be very difficult for the other party to argue that they are not incorporated. It does not matter if the party did not read the terms and conditions before signing.

The agent needs to take reasonable steps to bring the existence of the terms and conditions to the notice of the other party. Once the terms and conditions have been drawn to the attention of the other party, they will be binding if the other party proceeds in such a way that it is deemed to have accepted the terms (e.g. it proceeds without raising any objections). As such, the terms and conditions may be binding even if the other party did not sign them. All the same, it is always advisable to ensure that terms and conditions are read and signed.

2. Were the agent’s actions the “effective cause” of the sale/ recruitment?

Where the agent’s remuneration is based on a commission (usually a percentage) of a transaction, it is not entitled to such commission unless it is the “effective cause” of the transaction. In other words, did the agent’s actions actually bring about the relationship between the buyer or the seller.

Whether the agent’s work was an “effective cause” will depend on the facts of each case.

The reason for this term is to reduce the possibility that a principal will be obliged to pay commission to more than one agent.

3. Do the agent’s terms and conditions override the law on “effective cause”?

The “effective cause” law is implied into every introductory agent contract, unless the terms and conditions expressly exclude it or vary the definition of effective cause.

Where an “effective cause” term is implied, the burden is on the agent seeking the commission to establish that they were the effective cause.

If the terms and conditions seek to override the implied “effective cause” term, then clear wording must be used to this effect for it to be enforceable.

Case examples

In the case of Foxtons Limited v Pelkey Bicknell [2008] EWCA Civ 419 the Court of Appeal ruled that Foxtons was not entitled to recover commission from the seller. Foxtons initially showed the purchaser around a property but, at the time, the purchaser was not interested in it. Foxtons terms and conditions stated that the purchaser would pay Foxtons a sole agency commission of 2.25% or multiple agency commission of 3% if contracts were exchanges “with the purchaser introduced by Foxtons during the period of the sole agency”. The purchaser decided to buy the property at a later date having been shown around the property and negotiated the purchase through different estate agents. The Court held that the purchaser was not introduced by Foxtons.

In the case of John D Wood & Co v Dantata [1987] 2 EGLR 23, the seller instructed two firms of estate agents to sell a property; John D Wood and Dantata Beauchamp Estates. The property was sold and both estate agents sought commission from the seller. It was found that Dantata Beauchamp Estates had been responsible for the original introduction of the buyer and the initial offer of £650,000. John D Wood subsequently persuaded the buyer to increase his initial offer to £750,000. Dantata Beauchamp Estates was then responsible for persuading the buyer to raise it further to £800,000 which the seller accepted. It was held that, on the facts, it could not be said that both agents had been the effective cause of the sale and that the effective cause of the sale had been Dantata Beauchamp Estates.

The case of Wells v Devani [2019] UKSC 4 concerned a developer who had been trying to sell several flats and was put in touch with an estate agent by a mutual friend. It was found by the trial Judge that during a telephone conversation the estate agent indicated that his standard commission was 2% plus VAT, but he did not specify the event that would trigger his entitlement to commission. The estate agent introduced a buyer who purchased the flats and subsequently claimed his commission from the developer. The developer refused to pay. The case went to the Supreme Court where it was held that although the parties had not discussed the event that would trigger the payment of commission; the only sensible interpretation was that they would naturally have understood it to become due on completion.

Conclusion

It is important that you review an introductory agent’s terms and conditions before you start working with them. Even if you do not sign the terms and conditions, your actions may amount to an acceptance of the terms.

Ultimately, whether the agent was the “effective cause” of a transaction will depend upon the evidence that the parties can produce. As a result, it is always wise to follow any telephone conversation with an agent with an email confirming what was discussed with the agent. This may be invaluable should you wish to evidence that the agent was not the “effective cause” of the transaction or, in the alternative, if you are seeking to enforce your right to commission.

For further information, help and advice please contact Catherine Morris or Russell Ford in our Dispute Resolution team.

 

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