JUser: :_load: Unable to load user with ID: 445

Estate agents – get your contract in place before you start work

15 Dec 2016

The requirements necessary to form a contract are long established in the law of England and Wales, and are:

  • an offer;
  • acceptance;
  • consideration;
  • an intention to create legal relations; and
  • certainty of terms.

The above rarely cause an issue when it comes to written contracts, but verbal contracts can prove more difficult to interpret.

One such oral contract was the centre of the case of Wells v Devani [2016] EWCA Civ 1106 heard in the Court of Appeal. Mr Wells had undertaken the development of 14 flats in Hackney as a joint venture with a builder. Whilst six of the flats had been sold by a local estate agency (acting on a sole agency contract) and one was under offer, the remaining flats remained on the market. Through the recommendation of a friend, Mr Wells was contacted by Mr Devani on 29 January 2008. Mr Devani informed Mr Wells on the telephone that he could help find a buyer for the remaining flats. The first instance judge heard competing submissions as to the exact content of the telephone call but found that Mr Devani did tell Mr Wells that he was an estate agent, and that his commission for the transaction would be 2% plus VAT. In transpired, in the Court of Appeal’s view, that the essential requirement missing from the conversation was the “failure to define the commission entitling event”.

The “commission entitling event” was later defined in terms and conditions provided to Mr Wells by Mr Devani via an email on 5th February 2008, (as required by section 18 Estate Agents Act 1979). The eventual purchaser first saw the flats on 1st February 2008 and made and offer on 5th February 2008, but before the email to Mr Wells was sent. Mr Devani therefore needed to demonstrate that the verbal agreement amounted to a contract so that the eventual purchaser was “introduced to (Mr Wells) by (Mr Devani) at any time subsequent to the date of (the) instruction”. Mr Wells was potentially liable for a commission payment to the local estate agency, and therefore may have been liable for two payments if the verbal contract with Mr Devani was deemed binding.

Whilst it is open for the court to imply terms into a contract, it is settled law that there must first be a binding contract between the parties. It was found that the parties had agreed that the agent (which agent, Mr Devani) was entitled to commission if he found a purchaser for the properties, albeit they had not agreed the trigger point when such commission should be paid. The Court of Appeal decided that the judge at first instance was correct to find that there was an intention to create a legal contract, but crucially also found that a legal contract was not completed during the telephone call. The judge at first instance had erred by implying a term into the contract to make it legally binding. As per the leading judgment of Lord Justice Lewison, “it is not legitimate, under the guise of implying terms, to make a contract for the parties.” Essentially if a legally binding contract exists, a court can imply terms into it, however, the court cannot imply terms into an agreement to make it an enforceable contract.

There was a further sting in the tail for Mr Devani when the Court of Appeal agreed with the first instance judge’s decision regarding section 18 of the Estate Agents Act 1979 and the Estate Agents (Provision of Information) Regulations 1991 which give the court discretion to reduce or discharge the commission payable to an estate agent for any prejudice suffered by the client as a result of the agent’s failure to comply with his or her obligations under the regulations. Mr Devani failed to provide Mr Wells with written particulars of the circumstances when he would be obligated to pay remuneration to him as agent in a timely manner. On this basis the court of first instance reduced the commission payable by one third and the Court of Appeal held that, if there had been a binding contract, then this would be an appropriate reduction.

The case provides a clear warning to all those that deal with property to ensure they are clear on the terms that any third party are engaged on, and to distil all verbal agreements in writing. It is also a particularly pertinent reminder for estate agents who may be busy chasing the next sale to ensure they are conducting themselves within the regulations so they do not get a nasty surprise if a client later refuses to pay their commission.

Collyer Bristow LLP can advise on a wide range of contentious and non-contentious commercial matters. If you would like any further information, please contact our Real Estate Disputes team. For further discussion on this article please contact the authors Paul Henson or Dominic Cole.

Additional information