When standards are not met – implications for agency authorities

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Property Owners with standard form agency agreements may, at times, question the agent’s entitlement to a commission in the event of performance failures contrary to the anticipated standards, for example, by property neglect or mismanagement or a failure to meet the owner’s expectations as to sale price.

A sale, auction or letting and managing authority commonly enables a client (the seller, landlord or other person) to appoint an agent or real estate agency to act on their behalf (to buy, sell, lease or manage real estate) and may be drafted by an estate agent, drafted by a legal practitioner, prepared in a standard form from the Real Estate Institute of Victoria (REIV) or purchased from a commercial publisher.

Standard form agreements produced by the Real Estate Institute of Victoria (REIV) include the Exclusive Letting and Managing Authority, Exclusive Sale Authority and Exclusive Auction Authority. In addition to conferring an authority on the agent to sell, authorities (called ‘exclusive’ authorities) may also confer on the agent a power to deal exclusively with the property during the exclusivity period.

Key considerations affecting agency agreements often include:

  • whether the agreement remains exclusive, preventing sale by the property owner to third parties (or through another agent). Standard form agreements can often prevent sale for up to 120 days;
  • whether the property owner will remain liable to advertising and marketing expenses. Usually advertising and marketing costs, which are agreed to at the start, are separately enforceable by the agent, payable within 30 days by the agent rendering an invoice;
  • whether the commission is or will become payable, including in the event the property does not sell; and
  • if an agreement is void for formal deficiency, whether the commission, once paid, can be recovered, including for breach of terms.

The Estate Agents Act 1980 (Vic) (EA Act), operates to preclude an agents’ entitlement to commission in certain circumstances. Under s 50, EA Act, an agent cannot claim or sue for commission or expenses for a property or business transaction unless they meet the requirements of s 49A(1) and (2), EA Act, including that:

  • they have a written authority that includes all of the information and statements required by the Estate Agents Act 1980: s 49(1)(a),(c) EA Act;
  • they give the client a copy of the signed authority: s 49(1)(a) EA Act;
  • they inform the client that the commission and expenses are negotiable, before they sign an authority: s 49(1)(b) EA Act;
  • in terms of commission, both a dollar amount and percentage of the sale price to be shown: s 49A(1)(c)(ii) EA Act; and
  • the fee is required to be calculated by reference to ‘the reserve price or any other relevant amount’: s 49A(1)(c)(ii) EA Act.

While failure to observe these requirements, in breach of the EA Act, may preclude an estate agent being able to sue for or recover or retain any commission or money in respect of the relevant transaction,[1] an agent may be able to plead equitable relief by way of rectification of the sales authorities, which would allow an agreement to be corrected by a Court to accord with presumed common intention of parties.[2]

Careful review is required of both the written agency agreement and factual circumstances surrounding the agreement, including subsequent conduct of the parties.

KELLEHERS AUSTRALIA
Cameron Algie, LLB (Hons).
30 September 2022

Copyright © Kellehers Australia 2022.

Liability limited by a scheme approved under Professional Standards Legislation

This fact sheet is intended only to provide a summary and general overview on matters of interest. It does not constitute legal advice. You should always seek legal and other professional advice which takes account of your individual circumstances.


[1] Hamilton Finley Pty Ltd v Aojia Investments [2017] VSC 319, [136]. See our Newsflash on this case here.

[2] [2017] VSCA 11, [4].

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