A recent decision of the Victorian Court of Appeal in Advisory Services Pty Ltd (trading as Ray White St. Albans) v Augustin & Anor  VSCA 95 (Advisory Services) is sure to strike fear in the heart of estate agents, particularly those acting for developers.
The decision of Victoria's highest court has confirmed that strict compliance with the requirements of the Estate Agents Act 1980 (the Act) is necessary for an agent to be entitled to sue for, recover or retain commission.
The facts in Advisory Services were relatively simple and may be summarised as follows:
- The applicants ran a Ray White franchise and were engaged by the respondent land owners to sell property in Keysborough.
- The agents found a buyer, but that buyer failed to settle. The agent then found a second buyer who completed the sale. The agents then sought to recover two commissions from the land owners.
- The landowners refused to pay the commissions on the basis that the agent's sale authority did not contain the necessary rebate statement as required by the various sections set out in Part IV of the Act, notwithstanding that the authority clearly stated that the agent was not entitled to any rebate and was an industry standard authority.
- Specifically, the authority did not contain the exact words required by section 49A(4)(c) of the Act.
- At first instance, the County Court found for the landowners, holding that by virtue of the non-compliance with the strict provisions of the Act, the estate agent was not entitled to be paid its commission.
- The decision was upheld on appeal, who found that it was the clear intent of parliament that a correctly worded rebate statement must be included in every sales authority, before an agent is entitled to sue for, recover, and most importantly for developers, retain commission.
What does it mean?
While the decision is potentially harsh on estate agents, it is a boon for developers who in many cases will have paid significant commissions to agents over many years.
It means that not only can developers, or anyone else for that matter, avoid paying commission to agents where the agent's sales authority is defective, it means that commission previously paid under a defective authority can be actively recovered from an agent.
How can Pointon Partners help?
Pointon Partners can assist estate agents or their stakeholders by reviewing the form of authorities or agency agreements they use to ensure they are compliant with the Act. Given recently identified deficiencies in certain REIV authorities, Pointon Partners can also assist with preparing new authorities or agency agreements that comply with the Act and protect estate agents' interests. We can also advise on restructuring options that may be available.
Pointon Partners can review existing authorities and advise whether commission is:
- payable to an agent on a particular sale or sales; and
- recoverable from an agent where that commission has already been paid.
Once we form the view that commission is recoverable, we can take efficient and cost effective action to obtain orders requiring such commissions be repaid.
Pointon Partners have significant experience in similar claims, and are aware of other matters which may entitle a party to either refuse to pay or recover commission, including:
- where an estate agent (or external sales consultant who may have been engaged by a developer as a contractor) is not properly licensed (this is particularly prevalent in the development industry);
- where, in breach of section 49A(2) of the Act, an agent has failed to retain the sales authority documents for the 7 year period required by statute;
- where an estate agent's authority does not expressly state that the commission charged is subject to negotiation; and
- where commission is charged on a percentage basis, where the agent's authority does not expressly state the commission payable as a dollar figure.
We cannot emphasise enough how important this decision is for the real estate industry and expect that many estate agents who have been using non-compliant authorities, or are otherwise in breach of the Act will seek to restructure their businesses to wind down the entities exposed to claims for recovery of commissions.
Industry groups have also called on parliament to amend the legislation to prevent the recovery of such commissions.
A licensed estate agent is required, pursuant to section 98(3) of the Act, to retain the authority for a period of 7 years.
Any claim to recover commission will be statute barred after 6 years.
We can also act for you in defending any claim brought by your agent for the recovery of commissions that are not properly payable.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.