Failure to comply with the Estate Agents Act 1979 proves very costly for estate agents

28 Nov 2016

Most agents will be aware that the Estate Agents Act 1979 imposes an obligation upon an agent to ensure that, before any person enters into a contract under which the agent will engage in estate agency services, the agent provides specified information.

The information is intended to make clear, amongst other things, the circumstances in which the agent will become entitled to commission, as well as the amount or method of calculation of the amount of that commission.

The Act is clearly intended to give protection to those employing estate agents and a failure by the agent to comply makes the contract unenforceable unless the Court gives permission.

Even if the Court does give permission it can, and usually does, order that the commission be reduced to compensate for the agent’s breach.

The recent case of Wells v Devani [2016] EWCA Civ 1106 is a salutary reminder to agents of the consequences of not getting the paperwork right.

In this case, the Court of Appeal was asked to consider a decision of Judge Maloney QC sitting in the Central London County Court.  The case involved a Mr Wells, who was a property developer who had undertaken the development of 14 flats in Hackney.

By early 2008, 6 of the flats had been sold and 1 more was under offer.  The properties were being marketed by a local agent under a sole agency agreement.

Mr Wells was introduced to Mr Devani by a neighbour and the Judge found that Mr Devani had explained, in a telephone call, that he was an estate agent and that his standard terms were “2% plus VAT”.

Mr Devani subsequently introduced the properties to a Housing Association who, within a very short time, proceeded to purchase the remaining flats.

Not surprisingly, at this stage, Mr Devani sought payment of his commission but Mr Wells refused to pay.

The Judge in the County Court had found in favour of Mr Devani and held that there had been a contract between him and Mr Wells and that, whilst it was not clear precisely when Mr Devani would be entitled to commission (e.g. on exchange or completion) it must have been that commission would be due at the very latest on completion and so he implied a term to that effect.

The Judge however reduced Mr Devani’s commission by one third for failing to comply with the Estate Agents Act.

This may have seemed harsh to Mr Devani at the time but, matters took a serious turn for the worst in the Court of Appeal.

The majority in the Court of Appeal found that, as no “trigger date” for entitlement to commission had been agreed between the parties there was no concluded contract.  This meant that the Judge was wrong to have implied an entitlement to payment on completion as it was not possible to imply a term into a contract if no contract existed.

The end result was that Mr Devani is now not entitled to any commission and doubtless has been left with a substantial costs bill as well.

Whilst it was not necessary to decide the point in view of the fact that there was no contract, all three Judges did indicate that, had Mr Devani been entitled to commission, they would not have interfered with the one third reduction made by the County Court Judge.

The message for estate agents is clear:-

  • Make sure you comply with the Estate Agents Act by providing the required information in writing to clients at the outset.
  • Ensure that the client has accepted your terms, preferably by getting a signed written agreement.
  • If not, be prepared to find you may not be entitled to any or only a reduced commission and may well face heavy legal bills in attempting to recover this.
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