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Do we have a deal? – Estate Agents and Commission

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The recent Supreme Court case of Wells v Devani [2019] UKSC 4, interprets terms in an oral agreement made between a vendor and an estate agent in relation to the payment of agent’s commission and confirms that whilst an oral agreement may still be binding, where the Estate Agents Act was not complied with the court may reduce the agent’s commission.

Whilst the case focused on the trigger for when the agent’s commission became payable, it is a useful reminder of how a legally binding relationship is created.

Binding agreement

A contract can be written, oral or both.  A legally binding agreement comes into existence only if there is a mutual intention to create legal relations between the parties.

In the case of Wells v Devani, an oral agreement was made, by telephone, between the vendor of properties and an estate agent, whereby the agent would find a buyer, in return for a 2% plus VAT commission.  The agreement did not specify when the payment of the commission would become payable to the agent and the vendor subsequently refused to pay any commission following completion of the sale of the properties.

When determining whether there was a binding contract, the Supreme Court considered whether the oral agreement was complete and enforceable, despite not identifying the event that triggered the obligation to pay commission.

The following points were considered:

  • what had been communicated between the vendor and the agent by their words and conduct; and
  • whether the parties intended to create a legally binding relationship.

The Supreme Court held that the conduct of the agent in finding a buyer for the vendor’s properties indicated that the parties had acted on their oral agreement and therefore intended to create a legally binding relationship.  The agreement was therefore not too vague or uncertain to be enforceable and it was held that the commission to the agent was payable from the proceeds of sale.

Implying a term into the contract

In the case of Wells v Devani, the court held that it would be “naturally understood” that the trigger for the payment of the commission would be on completion of the sale of the properties.  It was therefore unnecessary for the court to imply this term into the oral agreement in this case.

Estate Agents Act 1979 and the effect of non-compliance

The case provides a useful reminder of the information that an estate agent is required to provide to a client before engaging in estate agency work, in order to comply with the Estate Agents Act (“the Act”) and to avoid the uncertainties of type demonstrated in this case.

An agent should provide:

  • details of the circumstances in which the client will become liable to pay remuneration to the agent for carrying out estate agency work;
  • details of the remuneration payable for carrying out estate agency work, or if that amount is not ascertainable at the time the information is given, details of the manner in which the remuneration will be calculated;
  • details of any payments which do not form part of the agent’s remuneration for carrying out estate agency work but which may become payable in certain circumstances and what those circumstances are.

In the negotiation stage, all conversations, including phone calls, should be recorded in writing and expressly stated that all issues are “subject to contract”.

In the case of Wells v Devani, the agent failed to comply with its obligations under the Act by not expressly informing the vendor of the event that would trigger the entitlement to commission and not providing any of the information in writing.

Notwithstanding the failure of the agent to comply with the Act, the court considered the degree of the agent’s culpability and questioned whether it was just to hold the oral agreement unenforceable.  It was held that the oral agreement was enforceable, for the reasons stated above, but that the commission payable by the vendor to the agent would be reduced by one-third, because of the agent’s failure to comply with the Act.

Comment

The case of Wells v Devani is a useful reminder that oral agreements, such as agreements made by telephone, may well be legally binding on the parties involved.

Clearly, a contract between a vendor and an estate agent should always be made in writing, to ensure that the interests of all parties are protected and to avoid uncertainty and in particular for an agent, the result here, being a reduction of what the agent believed was an agreed fee.

For any further advice, please contact the Brecher Litigation team.