Estate Agent's Commission

Estate agent's commission: required wording in a sole agency agreement

In The Great Estates Group Ltd v Digby [2011] EWCA Civ 1120, the Court of Appeal considered the effect of using the phrase "sole agency agreement" in an estate agency contract and the need (under the Estate Agents Act 1979 and related regulations) for estate agents to explain when damages in lieu of commission are payable.

The Estate Agents Act 1979 and the Estate Agents (Provision of Information) Regulations 1991 (SI 1991/859) (1991 Regulations) require estate agents to provide their clients with details of when "remuneration" is payable and explain terms such as "sole agency" (information obligations). The schedule to the 1991 Regulations sets out a definition of "sole agency", for estate agents to use in their estate agency agreements (statutory wording).

In this case, the estate agency agreement (the contract) referred to itself as a "sole agency agreement" but contained only part of the statutory wording. The contract did not say that the seller would be liable to pay remuneration if contracts were exchanged with "a purchaser introduced by another agent". The seller sold to a buyer introduced by another estate agent.

The Court of Appeal held that the first agent was not entitled to damages for lost commission. The court left the question open as to whether the seller was in breach of contract but noted that it was not sufficient for the contract to simply include the term "sole agency". The contract needed to expressly set out that the first agent was entitled to remuneration if the seller sold through another estate agent. The key point was that the first agent had breached its information obligations and therefore its claim for damages in lieu of commission was dismissed.

In a 94 paragraph dissenting judgment, Lloyd LJ strongly disagreed with the majority decision. In his view, the contract conferred a period of exclusivity on the first agent and did not breach the information obligations. However, unless the Supreme Court overturns the decision, the message for estate agents is clear: incorporate the statutory wording where possible or, failing that, ensure that the estate agency agreement deals with the information obligations expressly. (The Great Estates Group Ltd v Digby [2011] EWCA Civ 1120.)

For further information, please contact Warren Kaye in our Conveyancing Team.

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