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Can a real estate agent claim commission with no agency agreement?

 

A recent NSW Supreme Court decision provides insights on how a real estate agent might claim agents commission on the sale of a property without a signed sales agency agreement.
The decision is Savills (NSW) Pty Ltd v ATF CTH Pty Ltd [2020] NSWSC 956 (27 July 2020) (Adamson J).

The law

Section 55 of the Property and Stock Agents Act 2002 (NSW) provides:

55 No entitlement to commission or expenses without agency agreement

  1. A licensee is not entitled to any commission or expenses from a person for or in connection with services performed by the licensee in the capacity of licensee for or on behalf of the person unless:

    (a) the services were performed pursuant to an agreement in writing (an agency agreement) signed by or on behalf of:

(i) the person, and
(ii) the licensee, and ...”

Justice Adamson added this qualification:

“It is not a bar to a claim for commission under an agency agreement that the written version has been lost, misplaced or destroyed since its existence may be proved by secondary means: s 48 of the Evidence Act 1995 (NSW). The contents of the document must be proved on the balance of probabilities: s 142 of the Evidence Act.” (paragraph 201)

The decision in Savills v ATF

The alleged agency agreement was that ATF CTH Pty Ltd appointed Savills (NSW) Pty Ltd as its exclusive agent to sell the hotel component of a single tower development which also had residential and retail components at 9-25 Commonwealth Street, Surry Hills (Sydney). At the time, the property had Development Approval and a Construction Certificate, but no demolition or construction work had commenced.

After a detailed review of the evidence, Justice Adamson concluded by saying:

“the issues in the case relating to whether there was a signed agreement come down to two hypotheses.

The plaintiff’s case is that there was a signed agreement; that Mr Simpson [the Savills real estate agent] would never have gone on a roadshow without one; and that, but for there being a signed agreement, the defendant would never have allowed the plaintiff to deal with prospective purchasers on its behalf.

An alternative hypothesis is that both Mr Simpson and the defendant knew that no agency agreement had been signed but the defendant was content to clothe the plaintiff with authority to promote and market the hotel component of the site and would, had the hotel component been sold other than as a consequence of an introduction by Mr Shi [a director of ATF] to one of his friends or associates, have been content to pay commission to the plaintiff notwithstanding the lack of signed agreement.

The plaintiff has failed to discharge the onus of establishing the first hypothesis on the balance of probabilities. Indeed, the defendant has persuaded me of the alternative hypothesis: namely, that both parties knew that there was no signed agreement and were prepared to proceed regardless.” (paragraph 198)

“For the reasons given above, the plaintiff has not established that there was a written agency agreement. Accordingly, the plaintiff’s claim based on the alleged agency agreement fails.” (paragraph 202)

Was Savills entitled to damages for unconscionable conduct?

As an alternative to the claim for commission under an agency agreement, Savills claimed damages under s 236 of the Australian Consumer Law for statutory unconscionability contrary to s 21 of the Australian Consumer Law.

This was Justice Adamson’s analysis:

“The unconscionability claim, as particularised, is, in substance, that the defendant behaved unconscionably by encouraging the plaintiff to spend time and effort on the negotiations with Aligned [the prospective purchaser] to sell the hotel and then resolving to sell the land through a different agent, thereby depriving the plaintiff of the commission to which it would otherwise have been entitled and causing the plaintiff to incur expenses for which it would otherwise not be compensated. (paragraph 212)

The authorities establish that, in order to establish statutory unconscionability, the plaintiff must prove some moral fault or moral responsibility or that the defendant’s conduct amounts to serious misconduct which is plainly unfair and unreasonable: Qantas Airways Limited v Cameron (1996) 66 FCR 246 at 262 (Davies J) and 283-284 (Lindgren J, Lehane J agreeing). (paragraph 213)

The principal difficulty with the unconscionability claim as framed is that the evidence established that the reason the defendant decided not to develop the site and sell the components, including the hotel component, was that the estimate of construction costs made the development unviable. The defendant’s decision not to proceed was made towards the end of 2016 on the basis of the construction costs worked out by the plaintiff’s project management team which was led by Mr Keenan.

It is always open to an owner who has retained an agent on commission to decide not to proceed with a sale. This is one of the vicissitudes which is built into the agent’s commission and reflects the risk/reward ratio implicit in the fee payable on a successful sale. It was not unconscionable for the defendant to decide not to pursue the development. Mr Simpson became aware of the defendant’s concerns about viability at about the same time as Mr Keenan’s team was providing the figures as to construction cost. No decision was made by the three directors of the defendant until Chinese New Year 2017. (paragraph 214)

Once the decision had been made to sell the land, rather than the hotel component, there was no real question of Mr Simpson’s team being an appropriate agent, since Mr Simpson had no particular expertise in selling land and the plaintiff had only been appointed to sell the hotel component. In these circumstances, there was nothing unconscionable about the defendant choosing to retain Massari and Knight Frank as its joint agents to sell the fee simple. Although it became hypothetical, I am satisfied that the defendant would have paid commission to the plaintiff had the sale to Aligned completed. I note that the defendant also paid the plaintiff’s disbursements, which included printing costs and the cost of flights and accommodation for the road show. (paragraph 215)

I am not satisfied that the defendant’s conduct was unconscionable within the meaning of s 21 of the Australian Consumer Law.” (paragraph 216)

Conclusion

Of course, it is standard practice to hold a signed agency agreement before marketing a property for sale.

But there are circumstances in which a real estate agent may take the risk of marketing a property without a signed agency agreement. In this case, Saville’s Mr Simpson took that risk and found a purchaser who was prepared to pay $70.6 million, which the vendor accepted, subject to contract. Agent’s Commission on that sale would amount to $797,000.

The reason the sale did not proceed was the owner’s change of plans. The owner decided that the construction costs were too high which made the development non-viable. The owner decided to sell the site undeveloped through a different agent.

The Court’s conclusion on the unconscionability claim might have been different had the owner simply changed real estate agents without good reason after the original agent had found a purchaser “ready willing and able to complete”.

This decision makes clear that seeking damages for unconscionable conduct is a smart option for a real estate agent who finds a ‘ready, willing and able’ purchaser in circumstances where the owner denies liability to pay a commission because there is no signed agency agreement.

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