The Estate Agents Act 1979 and the Estate Agents (Provision of Information) Regulations 1991 were enacted to protect consumers. They require agents to provide prospective clients entering into sole agency or sole selling agency agreements with sufficient information to understand their liabilities. The information must be provided in writing and must identify – and explain – the effect of the type of agency agreement selected by the parties. Agents that fail to comply with these requirements must apply to the court for permission to enforce their contracts – and may not be allowed to do so.
The regulations include different paragraphs for use before entering into sole agency and sole selling agency contracts. The essential difference between the paragraphs provided for use in each case is that sole agents are not entitled to commission if clients sell to buyers that they introduce themselves during a sole agency contract – but sole selling agents are.
The Estate Agents Act 1979 and the Estate Agents (Provision of Information) Regulations 1991 were enacted to protect consumers. They require agents to provide prospective clients entering into sole agency or sole selling agency agreements with sufficient information to understand their liabilities. The information must be provided in writing and must identify – and explain – the effect of the type of agency agreement selected by the parties. Agents that fail to comply with these requirements must apply to the court for permission to enforce their contracts – and may not be allowed to do so.
The regulations include different paragraphs for use before entering into sole agency and sole selling agency contracts. The essential difference between the paragraphs provided for use in each case is that sole agents are not entitled to commission if clients sell to buyers that they introduce themselves during a sole agency contract – but sole selling agents are.
Great Estates Group Ltd v Digby [2011] EWCA Civ 1120; [2011] PLSCS 244 considered the possibility that a legal loophole may deprive consumers of the full protection of the legislation. The case concerned a sole agency agreement that failed to warn the seller of the consequences of using another agent during the sole agency period.
The majority of the Court of Appeal held that it will not suffice to describe an agreement as a sole agency agreement and warn that clients will be liable to pay commission on a sale to a buyer introduced by the agent or with whom the agent had negotiated during the sole agency period. Agents must also warn prospective clients that they will be liable to pay commission – or, importantly, damages for the loss of the chance to earn commission – if the client sells to a buyer introduced by another agent during the sole agency period.
The agent made the point that it would be odd to have to include words suggesting that the buyer was entitled to instruct another agent during the lifetime of a sole agency contract. It argued that the legislation required it to provide particulars of the “remuneration” payable under the agreement, but that it was unnecessary to refer to the client’s potential liability for damages were he to use another agent. It stressed that it is reasonably easy to explain how commission will be calculated, but that it is more difficult to particularise how damages might be assessed.
The agent also suggested that a decision to the contrary would affect numerous other firms that use similar terms and conditions to contract with clients, but the court was unimpressed. It accepted that the legislation was poorly drafted, but refused to deprive consumers of the protection intended by the legislation.
The case highlights the importance of putting clients on clear notice of the consequences of using another agent during the life of a sole agency contract. Firms would be well advised to check their terms and conditions to ensure that they spell out the economic effects of their agreements without any material omissions from the relevant statutory text.
Allyson Colby is a property law consultant
