Peter Jolly considers some problems arising from conflicts between estate agents and their clients

Solicitors and estate agents sometimes receive client referrals from each other. But what happens when a client's relationship with his estate agent breaks down and conveyancing solicitors are instructed not to pay the agent at completion?


When money is short, clients can resent the payment of seemingly undeserved professional fees. Cries of 'the agent didn't introduce the purchaser, I did all the work', or 'my new agent negotiated the deal', are all too familiar. What if the vendor sells privately during the currency of the agency arrangement, or the agent contends the first introduction was his? With boards and Internet advertising, that may be difficult to refute without evidence from the purchaser. Vendors who wish to change agents may forget that sometimes a (sole) agency contract cannot be immediately terminated.


How will the court approach disputes between estate agents and their clients? An estate agency contract requires the same analytical assessment as any other.


Who agreed what and what are the terms? In Midgley Estates Ltd v Hand [1952] 1 All ER 1394, the Court of Appeal held that when estate agents claim commission, the result depends on the construction of each particular contract, although it is likely that the parties intended that commission be payable in the event of an actual sale completing. But that may not be what was actually agreed, nor the totality of the contractual package.


What about implied terms, for example, under section 13 of the Supply of Goods and Services Act 1982, that services are undertaken to a reasonable standard with normal professional skill? While breach of a contractual term may give rise to rights to terminate the contract, more frequently disputes arise after the work envisaged by the contract is fulfilled. If the agent is in breach, what are the provable losses of the client?


Is the contract enforceable? Has there been a breach of the regulatory code imposed by the Estate Agents Act 1979 and the Estate Agents (Provision of Information) Regulations 1999 (SI 1991/859)? The regulations both aid the interpretation, and affect the enforceability, of the contract.


Section 18 of the 1979 Act prescribes mandatory written particulars to be given to the client at the outset. Under section 18(2), these include the circumstances in which remuneration is due, its amount, (if not a defined fee, the manner of its calculation, for example, 3% of the sale price), and like particulars of disbursements, such as advertising fees, and their payment date. Subsequently re-negotiated terms (no quick sale, so extra advertising or joint agency is agreed) require confirmation in writing before they are binding.


With the degree of exclusivity of the agency commercially linked to the commission level agreed, the distinction between 'sole selling rights' (the client vendor cannot arrange a private sale without triggering commission) and 'sole agency' is critical. These, and the meaning of 'ready, willing and able purchaser', or similar terms, if used, must prominently be explained by the agent (regulation 6). These expressions have model explanations in the regulations schedule, to ensure vendor client awareness of, for example, potential liability for fees if a sale takes place to a purchaser introduced by agent one, even though agent two has been instructed. This could mean a vendor paying twice, depending on the terms of the contract with agent two, if he pays agent two while ignoring any liability to agent one.


The regulations also require the agent to disclose potential conflicts of interest in services he (or connected persons) are rendering to the purchaser, such as where the agent's associated brokerage arranges a life policy for the purchaser.


The sanction for procedural non-compliance is that an agent needs court permission to sue (see section 18(6) of the 1979 Act). This is granted only if just, having regard to the prejudice to the client, and the degree of culpability of the agent. The court retains a general power, even if granting the application, to reduce the agent's fee. So, depending on the nature of the infringement, a full or partial defence to the claim for fees may exist.


Apart from a breach of the regulatory code, there may be other bars to enforceability. The agency contract will usually be between the householder (a consumer) and the agent, and will not have been individually negotiated. The contract must not contain unfair terms. While clients may think that large fees make the contract unfair, price is not relevant when assessing fairness under regulation 5.1 of the Unfair Terms in Consumer Contracts Regulations (SI 1999/2083). However, other aspects of the contract may be open to court scrutiny. Any unfair term will be unenforceable, but the rest of the contract will remain.


The terms of a commission contract were recently considered by the Court of Appeal in Foxtons Ltd v Thesleff [2005] EWCA Civ 514, in the context of default by the contractual purchaser.


Foxtons found a purchaser for Mr Thesleff and his mother. Contracts were exchanged at £860,000, and the deposit paid. The purchaser defaulted, and the 10% deposit was forfeited.


The vendor collected £86,000, and - without paying Foxtons' commission - went to another agent, who found a new buyer at £843,000.


Foxtons' terms and conditions provided that commission was payable by the vendor if at any time unconditional contracts were exchanged with a purchaser.


The Court of Appeal, overturning the trial judge, held that Foxtons was entitled to its fee. The 'purchaser' was not necessarily limited to someone who had completed the purchase contract. It could properly extend to someone to whom an interest in land is transferred or in whose favour it is created. Someone unconditionally entering into a contract to buy Blackacre could be a purchaser, because he could compel the vendor of Blackacre to complete - in equity, he was owner. Although the regulations required agents to give information to their clients, there was no compulsion on agents to use specific words contained in the regulations in their standard contracts with (vendor) clients.


And, on the particular terms of this contract, notwithstanding that Mr Thesleff had only signed the commission agreement as agent for his mother, he also was liable.


Thesleff, like Midgley, is a reminder that the first requirement is to investigate the terms of the agreement itself.


District Judge Peter Jolly sits at Portsmouth Combined Court Centre