October 6, 2017

How much did you say? – an estate agency law update

commission on house sale

As recently as July 2016, these issues came before the Court of Appeal, and in a Judgment given on 15 November 2016, the agent lost his claim for commission; Wells –v- Devani [2016] .

In order to understand why the agent, Mr Devani, lost in the Court of Appeal, it is necessary to look at the provisions of Section 18 of the Act, and to understand why this section is so important. A strict compliance with the Act will ensure that an estate agent does not miss out on their commission, and applications to the Court for permission (see later) will not be necessary.

The Act was introduced to operate as a form of consumer protection. To this date, estate agents are not required to be licensed, nor does a person need to register in order to practice as an estate agent. Anyone, except for a bankrupt, may practice as an estate agent, save where prohibited by Order of the Director General of the Office of Fair Trading. The only Regulations outside of the Act (and its Regulations) is the Voluntary Code of Conduct of the National Association of Estate Agents.

Section 18 Estate Agents Act 1979

What the Act requires is that there is certainty as to the circumstances of when a fee is payable, and how much that fee will be. The important section for this purpose is Section 18 which provides:

(1) Subject to Sub Section (2) below, before any person (in this section referred to as “the client”) enters into a contract with another (in this section referred to as “the agent”) under which the agent will engage in estate agency work on behalf of the client, the agent shall give the client:-

a. The information specified in Sub Section (2) below; and

b. Any additional information which may be prescribed under Sub Section (4) below.

(2) The following is the information to be given under Sub Section (1)(a) above:

a. Particulars of the circumstances in which the client will become liable to pay remuneration to the agent for carrying out estate agency work;

b. Particulars of the amount of the agent’s remuneration for carrying out estate agency work or, if that amount is not ascertainable at the time the information is given, particulars of the manner in which the remuneration will be calculated;

c. Particulars of any payments which do not form part of the agent’s remuneration for carrying out estate agency work or a contract or pre-contract deposit but which, under the contract referred to in Sub Section (1) above will or may in certain circumstances be payable by the client to the agent or any other person and particulars of the circumstances in which any such payments will become payable; and

d. Particulars of the amount of any payment falling within (c) above or, if that amount is not ascertainable at the time the information is given, an estimate of that amount, together with particulars of the manner in which it will be calculated.

What must be read in conjunction with Section 18 is the Regulations. The effect of Section 18 and the Regulations is that before any agency contract is entered into, the agent must give the client information as to his charges; either the amount or how it will be calculated (e.g. a percentage of the sale price) and the circumstances in which the client will become liable to pay.

The Regulations specify that the information is given in writing as soon as communication commences or as soon as reasonably practicable before the client is committed to any liability to the agent. Where certain terms are used in the contract, then these must be explained, and statutory guidance is given regards the wording to use.

Wells –v- Devani

The facts are that an oral agreement was reached that the client, Mr Wells, would pay a commission to the agent, Mr Devani, for introducing a buyer, and that the fee would be 2%. No other terms were discussed and the agreement was not confirmed in writing. When the client was later introduced to the buyer by the agent, the requirements of Section 18 of the Act had still not been attended to. The contract had not been confirmed and the Court held that the client had no legal liability to pay the agent’s fee.

If an agent fails to comply with the provisions of Section 18 and/or the Regulations, he will not be able to enforce his claim to commission without permission of the Court.

Application for Permission

In Wells –v- Devani, the Court of Appeal having held that there was no concluded contract by the time the agent effected the introduction that would have given rise to a fee, it nevertheless went on to consider an application for permission to enforce the fee had there been a contract, but owing to a breach of the Section 18 requirements, permission would have been required under Section 18(6) .

What Section 18(5) says is that where an agent has failed to comply with his obligations, the contract shall not be enforceable by him except pursuant to a Court Order under Section 18(6). An application made under Section 18(6) shall be dismissed if, but only if, the Court considers it just to do so. The considerations for the Court are prejudice caused to the client and the agent’s default and the degree of culpability for the failure. Where the Court does not dismiss the application, it may still reduce the amount of the fee so as to compensate the client for the prejudice suffered, Section 18(6)(b). The client, Mr Wells, did not know precisely what his liabilities were before he was legally committed; nothing had been given to him in writing and it was not made clear what the trigger event for the liability was. This was considered the “critical point” by the Court of Appeal.

On the facts in that case, the Trial Judge found that the agent was culpable, but there had been only some prejudice to the client, who had an expectation of paying a fee at 2%. It was thought appropriate by the Trial Judge to reduce the amount of the fee. The Court of Appeal considered at length the two factors of culpability and prejudice. Following careful consideration of the authorities, principally Great Estates Group –v- Digby Lord Justice Lewison stated that both factors must be considered together “and in the round. A failure to comply may be all the more culpable because of the prejudice that it had caused the client, whereas a failure that caused no prejudice might not be culpable at all”. Applying the Judgment in the Great Estates case, he went on to say that the ultimate question is whether it is just to dismiss the claim for a fee, having regard to prejudice to the client as a result of the agent’s failure to comply and his degree of culpability. If the claim is not dismissed, the Court then has a discretion to reduce the fee, but only for the purpose of compensating the client for prejudice. Whilst dismissing the claim, the Court of Appeal did say that if it had not done so, then a reduction in the amount of the fee (and costs) of 30% was fair.

It may be seen that a failure to comply with the statutory obligations of the Estate Agent’s Act and the 1991 Regulations, can be disastrous for an estate agent. If the minimum information is not given to the client, at the appropriate time and in the appropriate manner, then irrespective of how fine a job the agent has done and that the client gets a sale, the agent will, most probably, miss out on his fee.

Quantum Meruit

The legal doctrine of quantum meruit is that a reasonable sum of money is to be paid for services rendered or work done, when the amount is not stipulated in a legally enforceable contract.

The doctrine could not save the agent in Wells –v- Devani because the contract was not enforceable. Even if it had been, then the one term that was certain was that the amount of the fee would be 2%, so there would be no need to assess a reasonable fee. Having regard to the provisions of the Estate Agent’s Act and the 1991 Regulations, it must be considered doubtful that this doctrine would be of much comfort to an estate agent who had concluded a contract with a client, but had failed to specify what his fee will be and when it became payable. In my opinion, in all probability, such omissions would be fatal.

[i] The Estate Agents (Provision of Information) Regulations 1994 referred to at Section 18 of the Act came into force on 29 July 1991.
[ii] Edward Martin Robert Wells –v- Mehul Devani [2016] EWCA Civ 1106
[iii] The Court of Appeal held by a majority with Lady Justice Arden dissenting
[iv] Great Estates Group Limited –v- Digby [2011] EWCA Civ 1120

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