Payment of Estate Agent's Commissions

WELLS V DEVANI

Agents are often fundamental to a successful property transaction, especially when locating a buyer. Their fees can be structured in different ways, with the most common fee structure being a commission, whereby the agent takes a set percentage of the proceeds of sale in consideration of locating a buyer.

It is a requirement under section 18 of The Estate Agents Act 1979 ("the Act") that certain information is provided by agents to potential clients prior to the agent being formally engaged. Such information includes the agent's commission, the circumstances in which it will become payable and any fees that will be charged in addition to the commission.

In a decision that will be of particular interest to agents and other property professionals, the Supreme Court has recently considered the formalities of an agent's engagement and the circumstances under which an agent's commission will become payable.

Background

Mr Wells (the respondent in the case) is a property developer and completed a development of 14 apartments in Hackney, London in 2007. A local estate agent was instructed to market the properties for sale, of which they sold half.

By late January 2008 however, the remaining units were still on the market. With little progress from his present agent, Mr Wells was keen to instruct an additional agent to assist. Having discussed his difficulties with others, a neighbour of Mr Wells effected an introduction to Mr Devani (the appellant in this case), who was trading as an estate agent in London.

Mr Wells and Mr Devani had a telephone call, of which both parties gave different accounts in Court. Mr Devani claimed that he had confirmed to Mr Wells that he was an estate agent and that he would charge commission at 2% plus VAT on the sales, whilst Mr Wells asserted that no mention of commission had been made during their discussion.

Following the telephone call Mr Devani introduced Mr Wells to Newlon Housing Trust ("the Trust"), whom he knew was actively seeking residential property in London. The sale was successful and the Trust completed the purchase of the final 7 units for a total price of £2.1 million. Following completion, Mr Devani sought to claim his commission however Mr Wells denied that any commission was payable. Mr Wells claimed that due to Mr Devani not complying with the Act upon engagement, no event for the commission to become payable had been specified.

Upon the refusal of Mr Wells to pay the commission, Mr Devani issued proceedings which made their way up to the Supreme Court.

The Issues

Two points were at the heart of the case:

  1. The contract was not certain enough to be enforceable: Mr Wells' argument was that as no event triggering the payment of the commission was specified, the commission was incapable of becoming due; and
  2. The claim should be dismissed due to Mr Devani's failure to comply with the Act: the argument was made that Mr Devani did not comply with the provisions of the Act in his engagement with Mr Wells, thereby meaning that Mr Devani was never Mr Wells' agent.

The Decision

Despite these findings, The Supreme Court found in favour of Mr Devani, allowing him to collect his commission for the sale.

The terms of the contract were objectively assessed by the Court, concluding that the payment of commission to an agent following a successful sale arranged by that agent should be naturally understood. The Court were satisfied by the dealings between both parties throughout the transaction, and there wasn't a need to imply a term into the contract specifying that the commission would be payable at completion of the sale.

In relation to the provisions of the Act, the Court noted that whilst Mr Devani had failed to comply with his obligations under section 18 of the Act, however, based on the facts, this failure was not sufficient to deny him his commission.

BACK TO ALL NEWS

RELATED ARTICLES

Insight +
UK House Price Index Summary
18/09/19 UK House Price Index Summary: July 2019
News +
New reform for leasehold properties
02/07/19 UK update on residential leasehold property
Insight +
Overlooked by the Tate Modern
20/05/19 Overlooked by the Tate Modern
Insight +
Grounds for Possession of Commercia
13/05/19 Grounds for Possession of Commercial Premises