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Agent's fees: A court case removes 'effective cause' requirement.

publication date: Apr 8, 2008
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feesA recent court case (Fleurets Ltd v Dashwood [2007 EWHC 1610] QB); [2007] PLSCS 145; [2007] 2 EGLR 7 has removed the requirement for an estate agent to prove that it was the effective cause of the sale before that agent can legitimately claim a sale fee, when operating under a sole selling rights agreement. In short, the Fleurets case now means that as long as agents have incorporated the appropriate statutory wording into their terms of business, all that matters is that the purchaser was introduced to the client during the sole selling rights period.

Agency Terms

We are, of course, all familiar with (or should be!) the terms ‘sole agency, sole selling rights, and ready, willing and able purchaser’ (or other clauses of similar effect), which are those used most by an estate agents in relation to a client’s liability to pay remuneration (fees), and also that they must be clearly explained to the client in writing.

The RICS Manual of Estate Agency Law & Practice suggests that the following words must be used without material alterations or additions to the text, in the format set out below, in a document, be it written or a printed agreement, a letter, terms of engagement or a form, and whether or not such a document is signed by any of the parties, setting out the terms of the contract between them. The wording must be prominent, no less so than any other information in the document other than the heading, trade names, names of the parties, and numbers or lettering subsequently inserted therein in handwriting or in type, and clear and legible.

Appropriate Wording

The following is suggested to be the appropriate wording:

Sole Agency
‘You will be liable to pay remuneration to us, in addition to any other costs or charges agreed, if at any time unconditional contracts for the sale of the property are exchanged (in Scotland substitute unconditional missives for the sale of the property are concluded);
  • With a purchaser introduced by us during the period of our sole agency or with who we had negotiations about the property during that period; or
  • With a purchaser introduced by another agent during that period.’

Sole Selling Rights

‘You will be liable to pay remuneration to us, in addition to any other costs or charges agreed, in each of the following circumstances:

If (unconditional contracts for the sale of the property are exchanged) (in Scotland substitute “unconditional missives for the sale of the property are concluded”) in the period during which we have sole selling rights, even if the purchaser was not found by us but by another agent or by any other person, including yourself; and If (unconditional contracts for the sale of the property are exchanged) (in Scotland substitute “unconditional missives for the sale of the property are concluded”) after the expiry of the period during which we have sole selling rights but to a purchaser who was introduced to you during that period or with whom we had negotiations about the property during that period’.

Ready, Willing and Able Purchaser
‘A purchaser is a ‘ready, willing and able’ purchaser if he or she is prepared and is able to exchange unconditional contracts for the purchase of your property (in Scotland substitute “conclude unconditional missives for the purchase of your property”).

You will be liable to pay remuneration to us, in addition to any other costs or charges agreed, if such a purchaser is introduced by us in accordance with your instructions and this must be paid even if you subsequently withdraw and unconditional contracts for sale are not exchanged (in Scotland “substitute unconditional missives for sale are not concluded”), irrespective of your reasons.’

It should be noted however because of the provisions of the contract in which any of the above terms appear, the above explanations are in any way misleading, the explanation must be altered so as to accurately describe the liability of the client to pay remuneration in accordance with the contract’s provisions. Subject to this, any other terms having a similar purport or effect to those set out (eg ‘joint sole agency’) must be explained by reference to whichever of the above explanations is appropriate.

Interpretation

In the Fleurets case the court had to interpret the meaning given to the phrase sole selling rights as in the Estate Agents (Provision Of Information) Regulations 1991. Prior to 1991, the law insisted that a client in breach of a sole agency agreement was liable, not for commission, but damages for wrongfully depriving the agent of the chance to earn full commission.

These damages were then assessed as a percentage of the full commission, which depended very much upon the court’s view of how good the agent’s chance was when it was taken away. This solution ceased to be available in 1991, following the introduction of these regulations, which effectively meant that any agent who uses the expressions “sole agency” or “sole selling rights” in its terms of business must as stated give the client a clear written explanation of the meaning of the relevant term. A consequence of this was that the wording now entitles the sole agent to a fee, and not an award of damages.

However the question in Fleurets was whether the statutory wording was sufficient to exclude the term usually implied into estate agents’ agreements that, in order to qualify for their commission, they must have been the effective cause of the transaction.

The Facts of the Case

The appellant’s property comprised a mixed freehold licensed property with a 3 bedroomed flat over. She entered into an agreement with Fleurets in 2003, granting them sole selling rights unless determined by at least 4 weeks’ notice in writing.

The agency agreement was worded ‘the Estate Agents Act 1979 Sole Selling Rights Agreement’ and entitled Fleurets to commission on the sale to a purchaser ‘introduced to you during that period by us or any other person including yourself’.

Normal marketing of the property then commenced, and although several people viewed the property, no offers were forthcoming. In December 2003 it was agreed between the parties that a sign board would remain in situ, the property would remain on the market until such time as the appellant’s return from holiday and any people making further enquiries would be advised that the property was ‘on hold’ until the New Year.

In January 2004 Fleurets advised Ms Dashwood that they have received enquiries from 6 people, who wished to inspect the premises. She did not reply until February, when she withdrew her instructions and asked Fleurets to remove their sign board. Subsequently in March Fleurets’ contract was terminated and Ms Dashwood instructed a new firm of agents on the following day. The eventual purchaser (a Mr Ahkter) saw the property on the newly appointed agent’s website, negotiated a purchase, and eventually completed. On learning of this, Fleurets invoiced the appellant for their commission, which was not paid, and consequently proceedings were brought in the County Court. The Judge rejected the argument that the agreement did not require the estate agent to establish effective cause, but found that Fleurets had, as it happened, been the effective cause of the sales transaction and were thus entitled to their commission. As a result the appellant appealed and the respondent cross appealed.

Outcome

One of the problems in the case before the Higher Court was that no previous case law existed on this point, and the Judge therefore had to turn to text books on this matter, agreeing with the authors’ opinions that the wording of the regulations excluded the effective cause requirement.

It was therefore held that provided agents have incorporated the statutory wording into their terms of business, all that matters is that the purchaser was introduced to the client during the sole selling rights period. If an agent introduces a purchaser during the exclusive selling period, it will then be entitled to commission even if another agent had concluded the deal.

There is no business reason to imply effective cause into such a contract; it is inconsistent with the clear wording of the terms of the contract, unnecessary and did not pass the ‘officious bystander’s’ test. Somewhat ironically the facts established the second and subsequent agent had in fact done most of the work, but the interest of the ultimate purchaser had initially been brought about by Fleurets, and as he eventually proceeded to purchase that interest had not evaporated.

The Real Significance

Apart from the fact that Nelson J in this case, upheld the early decision of the County Court judge, resulting in Fleurets being entitled to their commission, the actual and real significance of this case is the Judge’s ruling on a wider issue, on which as stated, there had been no previous authority.

The Judge had to have recourse to text books on the subject, and found that he agreed with those writers that the wording of the standard commission agreement (as outlined above), and therefore by default every agreement based upon the wording set out in the 1991 Regulations, removed the ‘effective cause’ requirement altogether. Once the claimant in this case could show that the property had been sold to a person introduced to the client during the period of its sole selling rights, there was no argument, and commission was due.