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Navigating agency agreements can be tricky, often creating challenges for both vendors and agents. One conveyancer has revealed the key challenges that can arise from these agreements.
Jared Zak, principal solicitor and founder of Dott & Crossitt Conveyancers and Solicitors, has joined REB editor Liam Garman to discuss some of the biggest complexities and issues that commonly arise from agency agreements.
The pair tackled a range of scenarios, from vendors being forced to pay double commission to what happens to an agreement when an agent is accused of underquoting, and what happens when a buyer defaults.
An agency agreement is a legally binding contract that is signed before an agent can market a vendor’s property, with one example being an exclusive agency agreement.
Zak explained that under an exclusive agency agreement, where one agent has the sole right to sell a property for a set period (usually three months or more), a vendor could end up paying double commission if another agent also finds a buyer.
Even if the agent has no direct involvement in the sale, Zak said they are still entitled to commission if the buyer or another agent sells the property.
“The exclusive agency, it’s a concept a lot of people don’t get,” Zak said.
However, another “massively controversial” aspect of exclusive agreement is the concept of effective introduction, which refers to the original agent being entitled to commission when the property is sold to a buyer who was effectively introduced to the property by that agent.
“Agent number one will invariably say that, ‘I’m entitled to commission because even though my exclusive period has ended, this was a buyer that was effectively introduced by me’,” Zak said.
However, he said that courts tend to intervene in such matters and uphold the rights of the vendor.
“The fact is that if these matters ever go to court, judges will normally come in and say, ‘No, this is outrageous. You can’t be entitled to commission because you opened the door one day and let a buyer in’.”
“The judges will say, ‘Tell me why your name is not on that contract for sale as the agent – because otherwise I’m going to give it to the agent who actually sold the property whose name is on the contract’.”
Zak advised vendors to seek legal advice early to prevent any issues arising from agency agreements.
“Especially if you’re already going to see a conveyancer or a solicitor for the sale – maybe engage them a little bit earlier,” he said.
“One of the ways we try and do that is get that clause struck out or amended from day one, which would solve a lot of problems.”
However, Zak noted that an indemnity clause in an agency agreement can also create complications during a property sale.
“If the buyer sues the agent because some information was withheld from the buyer during the campaign that was material, the agent technically also has the right to bring the vendor forward,” Zak said.
“Most solicitors will try and get it paired back, and they’ll try and make it not apply in instances where the agent has been negligent.”
Additionally, the agent is also entitled to commission if the buyer defaults, leading to repercussions for the vendor.
“It’s the worst possible thing. You’ve sold your property with a buyer, you’re looking forward to settlement date, and your solicitor passes on a letter from the buyer solicitor saying, ‘I’m really sorry for X, Y and Z circumstance’,” Zak said.
“The buyer (being unable to complete) the sale puts you in a world of pain, particularly if you’ve got another purchase that you’ve committed to.
“And it could be for any reason. It could be the buyer has died, it could be that the buyer has all gone bankrupt. It could be the buyer’s disappeared … but in those circumstances, the agent is still entitled to commission.”
Furthermore, amid recent allegations of underquoting, Zak stated that vendors may have ways to circumvent agency agreements.
He said that, in most cases, the vendor would not have been contracted with the agent personally, but rather with the wider corporation.
“So if it’s Jared Zak personally who has lost his licence, well, that on the face of it, doesn’t actually really affect the agency agreement, which is with another party, assuming that other corporation still has its corporation licence,” he said.
“You might think, ‘OK, the vendors might be stuck with this’. I personally disagree ... because I think that at law we have a whole lot of things like implied terms.”
He explained the concept of frustration of contract, where the objectives of the contract clause cannot be met, either by virtue of some other circumstances.
“For example, the agent whose face is on the billboards can no longer perform that duty because they’ve lost their licence. In my view, the contract has become frustrated when that happens, so the contract is at an end.”
Finally, he said that when a vendor signs up with an agent, there is an implied term in the contract that the agent would keep all of his licences and be in good standing with his regulator to perform that job.
“It’s not black and white, but I do believe that there’s a very strong argument that there’s an implied term that’s been breached, or the contractor has become frustrated,” he concluded.
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