Effective Cause of Sale

Brian Cannan: Today I'm with Greg Jemmeson from Jemmeson Fisher Solicitors and Accountants. Hello Greg.

Greg Jemmeson: Hi Brian.

Brian: Well our subject today is Effective Cause of Sale and we're getting a bit of enquiry about this at the moment. How does that work?

Greg: Okay it's a very interesting and a grey area okay. Effective cause there is no set formula it's the courts have said each single instance will be determined on its own facts taking into account all of the actions of the agent and what the courts look at is that they know the agent might not be the sole factor in a sale it may be some negotiations between the respective solicitors it may be comments from bankers it may be accountants involved so there are a number of parties that can be involved in what is the final outcome of a sale. The normal question we would have when they ring in would be I've just signed up an exclusive agency and they're with another agent prior and one of the buyers from the other agent has come through and they're wanting to buy now. It's a very typical one and what everybody looks at and says well the second agent has an exclusive agency agreement so therefore they are 100% entitled to their commission now that's the general thinking because they've sold it to that person who has been introduced to the property the real test is what did the first agent do? If they had an open house a hundred people came through they just took this respect to buyers and they never followed them up didn't provide contracts didn't do anything it's very hard to say that all of the effective cause.

Brian: Buyer makes an offer.

Greg: Makes an offer, they worked closely with them they had a number of offers?

Brian: No just one.

Greg: Just one and the vendor rejected it for whatever reason as long as the the first agent can show they continued to try and work with that buyer, that buyer never lost interest in the property they were always going to buy it's just what price what was going to finish at those circumstances we're the first agent is looking at having a strong claim, it's not guaranteed, but it is a strong claim.

Brian: Timing, so it may be that the first offer came in two weeks ago and the buyer's come back two weeks later and put a higher often with the new agent.

Greg: Again the courts will look at how much work the first agent did. Certainly getting a higher price is indicative that they didn't conclude the sale. One of the other things that a lot of people forget is that there's two limbs to an agent's commission. First there's entitlement now that's a valid agency agreement that they've actually done the work and they've introduced and effectively introduced the person and its effect of course. That's one limb but the other limb is actual what is the quantum they're entitled to for the services so the contract says I'm entitled to 2% plus GST. The tribunal actually has the discretion to say yes you're entitled but given the circumstances we're I only go to award you 50% of the Commission or 10% yeah tribunal has that discretion which a lot of people are not aware of so in a circumstance they may look and say the first agent did all the work and effectively introduced that person who was always going to buy the property the second agent then has a valid agency agreement sold the property in pursuant to the contract is entitled to commission but we look at all of the circumstances and decide even though that two commissions are technically payable we're awarding 80% to the first agent and 20% to the second agent.

Brian: You said a word there that was interesting you said the first agent introduced and then the second agent basically effectively caused the sale.

Greg: Because what what we're saying in this first case is that the agent worked continually with that purchaser our up until the day their agency was brought to an end that person was always going to buy the first agent has written to the vendor and said thank you for giving us the opportunity we remind you that we introduced Mr. Smith to the property he is still interested and he is going to buy the property once the price is concluded we would ask that you exclude them from any future agency agreement now of course vendors aren't necessarily aware of that they need to exclude people that first agent by doing that sets themselves up for for a stronger potential claim to show they were the effective cause and they're being realistic they're saying only Mr Smith not the other 99 people who looked at the property Mr. Smith is the person we effectively introduced.

Brian: So let's go to the flip side of that and you being the conveyancing lawyer, in the contract it mentions that the purchaser warrants they haven't been introduced to the property by another agent so you've heard that they've changed agency and you've taken the idea that there have been introduced by one effective cause by the other this is in the contract so the purchaser warranting. What would you suggest for the agents to do.

Greg: The solicitor for the purchaser should be asking the question whether they've looked at the property with another agent and having that clause excluded. Okay.

Brian: You as the vendor's solicitor wouldn't allow that would you?

Greg: Well again this is where it becomes a negotiation point and a good solicitor will get the agents to come to some sort of conjunctional arrangement. The vendor's solicitor can't force them to do that but as a good commercial practice what that what that split is that will depend on the circumstances and how much work is done by the respective parties.

Brian: And how good the negotiation is of the agents.

Greg: Unfortunately these matters do end up in the tribunal from time to time, where the second agent is steadfast that they will not take a split or the first agent isn't satisfied with the amount, ends up in the tribunal and unfortunately the purchaser can also be dragged along as a party because the vendor will say well you warranted you weren't introduced by this first agent so you have to pay the commission and there are instances where the purchasers have been forced to pay part or all of the commission.

Brian: So I think we go back where we started, each case is taken on its merits.

Greg: Very much so and again it all comes down to agents keeping good file notes, good diary notes, who they've introduced what they've done in each respective instance.

Brian: In all the cases that we know of, most of them are negotiated between the agents so that they share the commission and let the sale goes through and everyone wins.

Greg: On a smart commercial basis that's the best result for all parties.

Brian: Greg, thank you very much.