Agent’s Commission Payable but Reduced for Not Complying with the Estate Agents Act
An important ruling was recently handed down by the Supreme Court in Wells v Devani [2019] UKSC 4, which concerned a dispute between an estate agent and seller which arose when the seller refused to pay the estate agent’s commission following completion of the sale of properties to a purchaser (whom the estate agent had found).
Mr Wells owned property which he wanted to sell, and he spoke with Mr Devani (an estate agent) over the telephone in 2008. At trial, the contents of the call were disputed but the trial judge found that the parties had discussed that the agent would find a buyer for Mr Wells in return for a 2% commission plus VAT and therefore a verbal contract had been entered into. There had been no discussion as to when the commission would be payable. Mr Devani found a potential buyer for Mr Wells. It was agreed that the flats would be sold for £2.1million. Mr Devani then sent his terms of business to Mr Wells which confirmed that commission would be payable at 2% plus VAT of the sale price on exchange of contracts. The properties were sold, and Mr Wells refused to pay the commission saying that the terms of the arrangement were too vague, and no binding contract had been made between them.
The trial judge had found that there was a contract and they implied a term into the contract to say that commission was payable on completion of the transaction (i.e. when the properties would be sold).
The Court of Appeal overturned this decision stating the court could not imply terms where there was an incomplete contract.
The Supreme Court judgment reversed the decision of the Court of Appeal. It unanimously decided that there had been a contract and that it was not necessary to imply a term into the contract as this was obvious and it “goes without saying” that an estate agent’s commission is due on completion of the sale.
The Supreme Court also confirmed that they would have implied this term into the contract if it was not so obvious to the reasonable person that this was the expectation of the parties.
Although the Supreme Court upheld the decision that a contract had been made and that commission was payable to the estate agent, it also ruled that there had been a breach of s18 of the Estate Agents Act 1979 and as a result the agent would only be entitled to a third of the commission due as a penalty for breach of these regulations.
Under the Estate Agents Act 1979, agents are required to provide the following information to a client before engaging in estate agency work:
1) The circumstances when the seller would be liable to pay the agent for carrying out estate agency work;
2) The amount payable to the agent to remunerate them for their work; and
3) Other payments which the seller is liable to pay, save for the estate agent’s commission.
Whilst this case proves that the courts are willing to uphold oral contracts and imply terms into oral contracts where necessary, in order to protect the agent and avoid financial penalties, all agents should ensure that the contract is in writing and that all communications (including verbal) should be put in writing and communicated to clients as soon as possible.