Conflicting Commission Claims (The Bugle)

When it comes to the sale of residential properties and the question of estate agent’s commission, it is important for sellers to understand their obligations in terms of law to avoid conflicting claims to commission on the sale of their property and the risk of having to pay a double commission. The entitlement of an estate agent to claim commission from a seller depends on three general requirements having been met: 

(1) the existence of a mandate. A sole mandate has to be in writing to be legal and binding. An open mandate does not have to be in writing, but it is highly recommended as a matter of best practice and to avoid unnecessary miscommunication, that every contractual relationship is always reduced to writing. The relationship between a non-corporate seller and agent is subject to the Consumer Protection Act, which provides for the cancellation of the fixed term contract on 20-business days notice. It does however provide for a cancellation fee to be charged by the agent. It is not sufficient for an estate agent to merely know about a property that is for sale – the agent has to be specifically mandated by the seller. An agent may well be the effective cause of a transaction, but unless specifically mandated to sell the property would not be entitled to commission.

(2) Performance in terms of the mandate. This would require that the estate agent must have introduced a willing and able buyer, resulting in the conclusion of a binding agreement between the parties, and that the transaction and its terms are substantially in accordance with what the seller actually envisaged.  There has been some interesting case law around this aspect. In the case of Wynland Properties CC v Potgieter and Another 1999, an estate agent was given a mandate to sell a property at a very specific net price, and even though the agent introduced the property to the buyer he was unable to close at the net price and the buyer ended up buying the property privately at the net price. Most mandate agreements therefore include a clause, which provides for a commission to be earned on the sale at any price mutually agreed upon. 

(3) Effective Cause. It is this third requirement that often results in uncertainty and conflicting claims of commission. Reams of commentary and case law are available on effective cause. An interesting article published by Craig de Lange lists how the courts have described this “effective cause” in a number of ways: (a) The agent must be “the decisive factor” or the major cause (“causa causans”). It is not decisive that the agent’s mere introduction of the property to the buyer implies effective cause. (b) The agent’s efforts must have rendered the seller ready for selling at the agreed price and the buyer, ready and able to buy.  (c) The agent’s introduction of the buyer must remain “overridingly operative”, which indicates an on going an active participation by the agent.  (d) The agent’s actions have to be seen as sufficiently important in achieving the result for which the seller agreed to pay him for.  (e) Where a first agent has introduced a buyer to a property and a second agent has persuaded the buyer to purchase the property, the effective cause will depend on whether the first agent’s introduction still operated to influence the buyer to buy and upon the significance or importance of the part played by the second agent, in a causal sense, in relation to the conclusion of the contract. Interestingly it is therefore not sufficient for an agent to merely be a cause or provide some input to the conclusion of a sale – the agent has to be the overriding effective cause of the transaction.

(Author: Andreas Wassenaar, published in The Bugle 6th March 2013)