What does the latest Supreme Court decision on Wells v Devani mean for estate agents, business transfer agents and consumers?
In the recent Supreme Court decision, the two main issues before the court were (i) whether an estate agent’s contract was valid and enforceable even if it did not expressly identify the event that would trigger the obligation to pay the commission, and in addition (ii) whether a failure to set out such a term and record it in writing (as required under section 18 of the Estate Agency Act 1979) would prevent the agent from recovering a fee.
The Supreme Court (reversing the decision of the Court of Appeal) held that an agreement between an estate agent and vendor was complete and enforceable despite not expressly identifying the event that would trigger the obligation to pay commission to the agent. As the parties had clearly demonstrated an intention to create legal relations the court held that (absent an express provision to the contrary) the only sensible interpretation was that the commission due to the agent would become payable on completion of the sale. Such a term could be implied could be implied to give the contract business efficacy. The failure to expressly agree the trigger event for payment did not render the parties’ understandings so uncertain as to prevent the formation of an enforceable contract or the agent’s entitlement to a fee; that is to say, a binding contract had still been reached.
As regards the application of section 18 of Estate Agents Act 1979, the court also considered whether the agent’s failure to comply with this section would prevent the agent from recovering a fee. Section 18 provides that the agent must explain to the vendor at the outset the circumstances in which a fee will become due and to record this in writing. Where an agent does not comply with section 18 the contract is typically unenforceable without permission of the court. In the present case, the court held that the agent had breached section 18 and that the agent should therefore have its fee reduced, but not dismissed in its entirety. The agent’s fee was reduced by approximately one-third – this however will be fact specific in every case and will largely depend on the degree of the agent’s culpability and the prejudice suffered by the vendor.
The message from this case is clear, and one which we emphasised to agents last year in our March 2018 article in Estates Gazette magazine: an agent should set out all the material terms of their agency with the vendor (including the circumstances when an agent’s becomes payable) before commencing marketing, and all the material terms of the agency should be recorded in writing at the outset. Failure to do so will likely give rise to disputes and result in the agent’s claim for commission being reduced, or possibly dismissed.