UK: Comply With Statutory Obligations Or Risk Losing Your Commission

Last Updated: 13 December 2011
Article by Ally Tow

In the case of The Great Estates Group Limited ("GEG") v Michael John Digby [2011] GEG entered a sole agency agreement with Mr Digby for the sale of his property. The property was sold within the period of the sole agency agreement but through another agency. GEG issued proceedings to recover damages for its lost commission (amounting to nearly £60,000) but the court found both at first instance and on appeal that GEG was not in fact entitled to its commission.

The Estate Agents (Provision of Information) Regulations 1991 ("the Regulations") set out the information which estate agents are obliged to provide to their clients to satisfy the requirements of the Estate Agents Act 1979 ("the Act"). In relation to explanations regarding liability to repay remuneration, if the term "sole agency" is used by the agent in the course of carrying out estate agency work then he is obliged to explain the intention and effect of that term to his client in the form and content of the statement set out in the Schedule to the Regulations, namely:

"Sole Agency

You will be liable to pay remuneration to us, in addition to any other costs or charges agreed, if at any time unconditional contracts for the sale of property are exchanged...

...With a purchaser introduced by us during the period of our sole agency or with whom we had negotiations about the property during that period; or

...With a purchaser introduced by another agent during that period."

GEG's wording was substantially the same as the wording in the Regulations but missed off the final sentence "with a purchaser introduced by another agent during that period."

The court found that by omitting these final words, GEG had failed to (a) provide Mr Digby with adequate particulars of the circumstances in which he was liable to pay remuneration and (b) comply with the Regulations to provide the information in the Schedule. On the face of it therefore GEG's agreement with Mr Digby was not enforceable and it was not entitled to its commission unless it could persuade the court to exercise its discretion under section 18(6) of the Act. Section 18(6) requires the court to have regard to the prejudice caused to the client as a result of the agent's failure to comply with its obligations and the degree of culpability for the failure.

In this case it was argued that the prejudice to Mr Digby was that he had paid commission to the second agent involved in the sale and that if he had been adequately warned about the possibility of incurring two sets of agents' fees he would have acted differently. The court accepted that the level of prejudice was such that it should not exercise its discretion to allow GEG to recover damages for its lost commission.

The omission of ten words from a contract therefore cost GEG some £60k and no doubt significant legal costs. The court in recent years has shown reluctance to allow estate agents to recover commission where it means the client will incur liability to two agents. This is yet a further example of that approach.

The case also serves as a reminder to ensure that any agreements are compliant with the requirements set out in the Regulations and the Act. This case dealt with a sole agency agreement but the Regulations also require information to be given when the term "sole selling rights" is used. It is easy to see how the court might apply the principles set out in this case to a similar case involving sole selling rights.

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