Where a company holds land, ownership can change in one of two ways. The company may sell the land outright or, alternatively, the shareholders may transfer their shares to a buyer. Modern property transactions are often structured as share sale agreements. None the less, many selling agents would probably expect to receive their commission if they were the effective cause of the transaction. However, in law, the sale of shares in a company that owns land is an entirely different transaction to the sale of the land itself.
In Estafnous v London & Leeds Business Centre Ltd [2009] EWHC 1308 (Ch); [2009] PLSCS 203, a land agent claimed commission following the completion of a transaction. The agreement on which he relied was not a typical estate agent’s commission contract. It was written with a specific transaction in mind and provided that “on completion of the sale of the property to the intending buyer” the land agent was entitled to receive a payment of £2m.
Where a company holds land, ownership can change in one of two ways. The company may sell the land outright or, alternatively, the shareholders may transfer their shares to a buyer. Modern property transactions are often structured as share sale agreements. None the less, many selling agents would probably expect to receive their commission if they were the effective cause of the transaction. However, in law, the sale of shares in a company that owns land is an entirely different transaction to the sale of the land itself.
In Estafnous v London & Leeds Business Centre Ltd [2009] EWHC 1308 (Ch); [2009] PLSCS 203, a land agent claimed commission following the completion of a transaction. The agreement on which he relied was not a typical estate agent’s commission contract. It was written with a specific transaction in mind and provided that “on completion of the sale of the property to the intending buyer” the land agent was entitled to receive a payment of £2m.
Unfortunately, it is common to find that a contract does not provide for the events that occur. The commission contract dealt with variations in the price and also for the sale of the property to a third party that was related to, or associated with, the intending buyer. It did not provide for the payment of commission in the event of a corporate sale rather than of a property transaction.
The High Court accepted that the land agent had made the requisite introduction. However, the judge regretfully decided that the share transaction was not covered by the commission contract because the language used did not anticipate the transaction that resulted. The buyer had purchased shares in a company, which gave it control of the property; the land had not actually changed hands and the proprietorship register at the Land Registry remained the same.
The judge accepted that it might have been argued that the land agent would have been entitled to his commission had the other party to the contract sold what it had to sell, either by: (a) transferring the shares in the company that owned the property; or (b) procuring a conveyance of the land. However, this is not what happened. In the end, the other party to the commission contract did not sell anything; instead, it was sold.
The judge commented that it would be entirely normal for a company to pay commission on the sale of its own asset because it would receive the purchase price. However, it was much less clear why a company would agree to pay commission on a sale of itself or of its parent. A company would rarely make such an agreement because it would not benefit from the proceeds of sale.
Draftsmen take note. If a company is to be liable for the payment of commission on the sale of it or its parent, the contract should say so in clear words.
Allyson Colby is a property law consultant
