Estate agents’ commission – some common failings

The Estate Agent’s Act 1979 is rapidly approaching its 40th anniversary, yet still agents make mistakes and can all too easily lose hard-earned commissions. 

An estate agent’s right to commission is a matter of contract. The agent offers to provide services to their client in reward for payment. The parties intend that this agreement be legally binding. A contract is formed in law. But, an agent has added requirements before they can enforce that contract.

The Estate Agents Act 1979 requires that the client must be given certain information: particulars of the circumstances in which the client is liable to pay fees, of the amount of the fees, and particulars of any other payments the client might have to make, for example advertising disbursements.  The law also specifies how and when the information must be given.

The Estate Agents (Provision of Information) Regulations 1991 provide that the information above must be given in writing as soon as communication with the client commences, or as soon thereafter as is practicable.  

Despite the fact that the regulations have been in force since July 1991, some estate agents do still fail to comply fully with the law, and consequently experience difficulties getting paid.

The Act says that if any of the foregoing requirements are missing, then an estate agent’s contract for commission shall not be enforceable without permission of the court. Even if permission is granted, the probability is that the court will reduce the amount of the fee. Recently the Court of Appeal held in the case of Wells –v- Devani [2016] that up to 30% was reasonable!

An agent may easily avoid the problems of having to apply to the court for permission by ensuring that the agreement is recorded in writing. Best practice is to require the client to sign a letter of appointment, or a contract at the outset, but where that is not possible, do confirm the important terms concerning the fee (how much and when does it become payable?) in writing as soon as possible afterwards. The use of e-mail is satisfactory.

First introduction

A common issue is who introduced the buyer first and who should get the fee? Wherever possible, an estate agent would ideally operate on a sole selling rights basis, but in any event, always record every interest displayed in a property by an applicant.  

Always word the agency contract so that it is the introduction to the property that triggers the potential entitlement to a fee, not an introduction to the vendor. This should ensure that the agent does not miss out on a commission if the buyer later contacts the seller directly and then purchases the property. 

Remember, the Estate Agent Act requires this, as with other points, to be specified in writing forming part of the client contract. It is this contract that will determine whether commissions are payable or not.

*Stephen Welfare is a Partner in the law firm Royds Withy King. He acts regularly for estate agents on commission recovery cases and on other aspects of estate agency law.