Most landowners employ estate agents to sell their properties and breathe a sigh of relief when a buyer comes along. Most will be prepared for the fact that the buyer could withdraw at any time before exchange of contracts, but would not expect the transaction to fall through between exchange and completion. However, some buyers prove unable or unwilling to complete.
In the absence of an agreement to the contrary, this will not relieve the seller from liability for the estate agent’s commission if the agent’s terms and conditions state that the seller becomes liable to pay their charges when contracts are exchanged. In Foxtons Ltd v O’Reardon [2011] EWHC 2946 (QB); [2012] PLSCS 05, the sellers tried to avoid liability under a provision to this effect.
Most landowners employ estate agents to sell their properties and breathe a sigh of relief when a buyer comes along. Most will be prepared for the fact that the buyer could withdraw at any time before exchange of contracts, but would not expect the transaction to fall through between exchange and completion. However, some buyers prove unable or unwilling to complete.
In the absence of an agreement to the contrary, this will not relieve the seller from liability for the estate agent’s commission if the agent’s terms and conditions state that the seller becomes liable to pay their charges when contracts are exchanged. In Foxtons Ltd v O’Reardon [2011] EWHC 2946 (QB); [2012] PLSCS 05, the sellers tried to avoid liability under a provision to this effect.
The sellers claimed that it was a term of their agreement that the agents would find a “cash buyer” with sufficient funds to complete the purchase, or that the agents had been negligent in recommending the buyer’s offer. The judge preferred the agents’ evidence.
Estate agents undertake to find prospective buyers and are not responsible for investigating their financial status, unless they expressly agree to do so. The test of ability to purchase is usually satisfied when a buyer enters into an unconditional contract to buy land. The stipulation was not one that an estate agent could easily perform and this was not the agreement here.
The sellers challenged the validity of the clause on the ground that the obligation to pay commission before completion was unfair within the meaning of the Unfair Terms in Consumer Contracts Regulations 1999. The judge disagreed. The agents had agreed to find a buyer and there was nothing more for them to do, or that they could do. By contrast, the sellers could, if they chose, seek an order for specific performance, or rescind the contract and seek damages.
The judge also accepted the agents’ argument that the regulations do not require that terms which define the main subject matter of a contract and which are expressed in plain, intelligible language must also be fair. The contract provided that the agents were entitled to commission in return for the introduction of a buyer who exchanged unconditional contracts to purchase the sellers’ property. The term defined what was required under the contract. Consequently, it was unnecessary to consider whether it was fair.
The judge gave equally short shrift to the sellers’ claim that the agents’ had misrepresented the buyers’ financial position. The judge was not satisfied that the agents had misled the sellers, and ruled that the sellers’ claim under the Misrepresentation Act 1967 was ill-founded. The Act applies as between the parties to a contract and the agents were not a party to the contract for sale.
Estate agents will be relieved by the decision. Sellers would be well-advised to ensure that deposits paid on exchange of contracts will suffice to pay their estate agents’ commission – and that the money can be used for that purpose if completion is deferred for longer than usual.
Allyson Colby is a property law consultant
