Five key strategies to reduce risk for agency related services

Contracts of agency are used in a variety of sectors, from real estate to business brokering. We have previously considered the importance of agents engaging with their clients on correctly drafted agency agreements and the formalities, rectification and misleading or deceptive conduct in agency agreements.

In this article, we have identified five common issues we see in practice which contribute to the difficulties in agents recovering, or in fact losing their right to charge, their commissions.

Below we provide some useful tips and actions to consider to help you de-risk your business and reduce the loss occasioned by unrecoverable commissions.

1. The 48-hour rule

First, you must provide a copy of the signed agency agreement to the party from whom you may be entitled to commission, within 48 hours of signing the agreement. In our experience litigating agency agreement disputes, we commonly come across parties who have failed to satisfy the 48-hour rule, rendering their agency agreements unenforceable. The application of the 48-hour rule varies across Australian states and territories. It is important to consider that you will need to prove compliance with this rule and therefore handing a copy to the client after signing may not be sufficient. It is always recommended that you send the copy by email or post and keep a record of the delivery.

In NSW, section 55(1)(c) of the Property and Stock Agents Act 2002 (NSW) (PSA Act) says that an agent will not be entitled to any commission unless a copy of the agency agreement signed by or on behalf of the agent was served by the agent on the person from whom the commission is due within 48 hours after the agreement was signed by or on behalf of that person. In the Australian Capital Territory, the 48-hour rule can be found in section 100(1)(d) of the Agents Act 2003 (ACT).

In Victoria and Queensland, agency agreements must be served on the principle. However, the 48-hour timeframe does not apply. In Queensland, section 49(1)(d) of the Estate Agents Act 1980 (Vic), provides that an estate agent must not seek to obtain payment in respect of work unless the agent (or a representative) gave the person a signed copy of the engagement or appointment. In Victoria, a similar requirement is enshrined in section 109(2) of the Property Occupations Act 2014 (QLD).

In Western Australia, the requirement is more onerous. A copy is required to be given to the principal “immediately after the signing” of the agreement.[1] In Tasmania, the requirement is “as soon as practicable after it is signed”.[2] By contrast, in South Australia and the Northern Territory, there is no requirement to serve a copy of the agreement.

As a way to de-risk possible loss for non-compliance with the 48-hour rule (or the rule specific to your state or territory) and streamline your internal processes, we recommend that all agency agreements are sent to the client upon signing by email or post.

It is essential that due process is followed in relation to the service of agency agreements, by reference to the legislation in the relevant jurisdiction, to ensure that agency agreements remain valid and enforceable.

2. Poorly drafted agency agreements

Second, always have your agency agreement drafted, amended or reviewed by a qualified lawyer who has experience in litigating agency agreement disputes. In our experience, this is a key pain point in the process of collecting an agent’s commission.

Poorly drafted agency agreements can arise as a result of:

• self-drafting or self-editing by the agents.

• entering into agency agreements without legal review or oversight.

• using previously drafted agreements, which do not have specific regard to the issues, facts or circumstances in the present matter.

All amendments to agency agreements should be discussed with and drafted by a lawyer to ensure enforceability, coherence with the rest of the agency agreement and more importantly, compliance with the legislation. In our experience, failure to do so can cause:

1. confusion, in terms of the meaning of terms or clauses in the agreement

2. contradiction with other terms of the agreement

3. unenforceability

4. noncompliance with the legislation.

3. Unsigned agency agreements

Third, ensure your agency agreement is signed by all parties. Section 55(1)(a) of the PSA Act, provides that a licensee is not entitled to any commission unless the services were performed pursuant to an agreement in writing which was signed by both parties.

We often see unsigned agency agreements at the heart of a later dispute between the parties. The consequence of such unenforceable agreements is often that the agent is not entitled to any commission.

Similarly, agency agreements that are signed by persons without due authority are also equally problematic. It is important to know your client and know who must sign the agreement in order for it to bind the client to the terms of the agency agreement. 

In some Australian states, agents may have the benefit of falling back on a quantum meruit argument, relying on Pavey & Matthews Pty Ltd v Paul (1987) 162 LR 221 (Pavey & Matthews). Quantum meruit is an expression which means “the amount he [sic] deserves” or “what the job is worth” and is often used to seek payment in building (or other) disputes where a written contract is rendered unenforceable.

There have been some cases which disagree with the principle set out in Pavey & Matthews in the context of agency agreements, including Investmentsource Corporation Pty Ltd v Knox Street Apartments Pty Ltd [2002] NSWSC 710[3]. However, no decision has resulted in a binding position that a quantum meruit claim cannot be pursued as a general rule, in respect of agency agreement disputes. Some more recent decisions in the ACT[4] and NSW[5] have suggested that irregularities in agency agreements do not necessarily prevent a licensed agent from claiming payment for services on a quantum meruit basis. The law is not settled on this point.

4. Being the Introducer or “effective cause” of sale

Fourth, in order to ensure you can prove that your introduction has been the effective cause of a sale you must maintain good records at all times. When an agency relationship turns into an agency dispute, contemporaneous records of communications, conversations and introductions often become critical pieces of evidence in establishing when an agent was the introducer to a transaction. A written file note of a conversation taken at the time of the conversation is a much more persuasive and reliable piece of evidence than a faded recount of a conversation from months or years ago.

This must also be balanced against being the effective cause of the sale. That is, was the agent:

1. the introducer of the purchaser - in which case you would be entitled to contractual relief; or

2. the effective cause of the sale – in which case you may be entitled to equitable relief.

In LJ Hooker v WJ Adams Estate [1977] HCA 13, it was found that if an agent introduces a person who ultimately becomes the purchaser, the agent has been an effective cause of the sale, and any intervention of the seller, or other person, is irrelevant. An agent would also be entitled to be paid commission if a related entity of the introduced entity becomes the eventual purchaser.

Agency businesses should ensure their staff are trained in, and adhere to record-keeping and document management protocols, or implement relevant automated software to do so. Otherwise, businesses are at risk of being the effective cause of a sale, without sufficient documentary evidence to prove it and therefore having difficulty in securing their commission.

5. Reputational and Commercial Considerations

Finally, we often see agents and licensees who shy away from pursuing their entitlement to commission on a transaction, because they do not want to damage the commercial relationship with a party who provides them with regular work.

Whilst this is a matter for every client to decide individually, it does highlight the need to ensure the terms upon which commission is payable are clearly outlined, understood and agreed by the parties, to save the souring of a fruitful commercial relationship, over a rightful claim for commission.

Authors: Adam Cutri, Emma Boyce and Isabelle Stillman

[1] Section 60(2)(c) of the Real Estate and Business Agents Act 1978 (WA).

[2] Section 44(4) Property Agents and Land Transactions Act 2016 (Tas).

[3] Per Barrett J at [63] – [84].

[4] Canberra South Real Estate Pty Ltd v 3 Property Group 5 Pty Ltd (2022) 18 ACTLR 178.

[5] Tyche Asset Management Pty Ltd v Flyland Development Group Pty Ltd [2021] NSWSC 1283 per Henry J at [51] – [55].