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Are you a Property Seller or an Estate Agent?

If so be careful to ensure that your terms of engagement are clear from the start. It has long been established in English law that in order for a binding Contract to arise you need one person to make another person an offer, for that offer to then be accepted and for something of value to change hands between them.

Also the people concerned must intend that this should give rise to a legally binding relationship. The final key element is that the terms between them must be clear and certain.

Ordinarily this does not create an issue where a Contract is in writing but what if there is nothing in writing? This may be more difficult.

One such oral contract occurred in the recent Court of Appeal case of Wells v Devani [2016] EWCA Civ 1106. Mr Wells had undertaken the development of fourteen flats in London as a joint venture with a builder. Six of these flats were sold via a local estate agent (acting on a sole agency contract) and one was under offer. The remaining flats remained on the market.

Quite separately and through the recommendation of a friend, Mr Wells was contacted by a Mr Devani. Mr Devani informed Mr Wells on the telephone that he could help find a buyer for the remaining flats. It appears from the evidence submitted in the case that during this important telephone call Mr Devani told Mr Wells that he was an estate agent and that his commission for selling these remaining flats would be 2% plus VAT.

However, crucially in the Court of Appeal’s view, there was an essential requirement missing from the conversation ie ‘failure to define the commission entitling event’. The ‘commission entitling event’ was later defined in terms and conditions provided to Mr Wells by Mr Devani in a subsequent email several days later (as required by section 18 Estate Agents Act 1979).

The eventual purchaser first saw these remaining flats and quickly made an offer which happened after the telephone call but before Mr Devani’s email to Mr Wells.

Was Mr Devani entitled to a commission payable by Mr Wells?

Mr Devani needed to demonstrate to the Court that the oral agreement made on the telephone amounted to a contract so that the eventual purchaser was ‘introduced to Mr Wells by Mr Devani at a time subsequent to the date of (the) instruction’.

It should be borne in mind that Mr Wells was potentially already liable for a commission payment to the original local estate agent, and therefore may have also been liable for a second payment of commission in the event of a finding by the Court that the ‘contract’ made over the telephone with Mr Devani was deemed binding.

It is open to the Court to imply terms into a contract, but, as is mentioned below, for this to happen there must first be in existence a binding contract between the parties.

Here it was found that the parties had agreed that the agent ie Mr Devani was entitled to a commission if he found a purchaser for the properties but they had not (during the telephone conversation) agreed the trigger point when such commission should be paid. The Court of Appeal decided that although there was an intention to create a legally binding contract, crucially, a legally binding contract was not completed during the telephone call.

The Court went on to say that if a legally binding contract already exists, a court can imply terms into it. However, a court cannot imply terms into an unenforceable agreement to make it enforceable.

Quite separately the Court of Appeal also said that section 18 of the Estate Agents Act 1979 and the Estate Agents (Provision of Information) Regulations 1991 give the Court discretion to reduce or discharge the commission payable to an estate agent for any prejudice suffered by the client as a result of the agent’s failure to comply with his or her obligations under the regulations.

Here (at the crucial time) Mr Devani failed to provide Mr Wells with written particulars of the circumstances when he would be obligated to pay remuneration to him as agent in a timely manner. This being so the Court of Appeal held that, if there had been a binding contract, there would be an appropriate reduction in the commission payable.

One final point. This particular case was decided by the three judges in the Court of Appeal on a majority of two to one. The fact that they were not unanimous shows how difficult such cases can be.

This case is instructive for people who deal with property, whether they are sellers, buyers developers or agents. They need to ensure that they are clear on the terms on which they are engaged and to ensure that an agreement or arrangement made on the telephone is quickly and clearly evidenced in writing.

For further information or assistance in relation to Property matters, please contact Jude Fletcher.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.