A recent case before the highest court in the land has served to emphasise the vital importance of engaging properly with clients if estate agents expect to be paid for the work that they do.
In Wells –v- Devani, the Supreme Court had to grapple with a lack of clarity about when any commission would be due to an agent, but also the failure to comply with the requirement to provide certain written information at the outset of the client relationship, under the Estate Agents Act 1979.
What does the Act require?
In summary, an estate agent must provide written information to a client that details the circumstances that will trigger the client’s financial liability to the agent. Under The Estate Agents (Provision of Information) Regulations 1991 this written information must be provided to the client before the client becomes committed to any agreement with the agent.
And if the agent doesn’t comply with this?
For any agent who fails to comply with this requirement, the Act provides that “the contract shall not be enforceable by him” unless he seeks and secures permission from the court. So the starting point (and default position) is that the agreement to be paid is unenforceable. In any application to the court for permission to enforce an agency contract, the court must look at what harm has been caused to the client by the agent’s failure to comply and also the extent of the agent’s culpability for the failure.
Having examined those factors, the court can grant or refuse to grant the agent permission to enforce the contract, but it can also allow the agent to enforce the contract subject to imposing a fee reduction “to compensate the client for the prejudice suffered as a result of the agent’s failure to comply with his obligation”.
Determining any application for permission to enforce an estate agency contract requires a value judgment in which a court must weigh up all the relevant facts of each case.
It should be borne in mind that these rules are a form of consumer protection. Their purpose is to ensure that a person instructing an estate agent knows what his liabilities to the agent are before he engages him. There may be cases where the degree of an agent’s culpability for failing to comply is so great that it justifies dismissal of any application to enforce the agreement, even if the client has suffered no prejudice.
On the facts of Wells –v- Devani, the agent had failed to provide his written terms of engagement at the outset but his delay in doing so was less than one week. The instruction also had a degree of urgency and the client was based abroad. In the circumstances, the court was persuaded to give permission for the agent to enforce the agreement but subject to a fee reduction of one third of the commission agreed. In that case, a fee of nearly £50,000 was reduced to £32,900. A costly error but it could have been even more costly. The moral is to engage with clients in writing, at the outset and with full details of the agency’s terms.
For more information please contact Paul Lunt.
