Estate agent unable to claim his fee on successful property sale
17 February 2017
The Court of Appeal has decided that it cannot imply contractual terms where there is no contract in the first place. In this case, it would not imply a term to enable an estate agent to recover his commission on a sale.
Mr Wells was having difficulty selling some flats in Hackney that he had developed. Through a friend, Mr Devani, who was an estate agent, approached Mr Wells by phone on 29 January 2008.
The judge in the High Court concluded that Mr Devani considered himself to be proposing himself to Mr Wells as an agent rather than a buyer and was looking for a commission from Mr Wells as the source of his profit. The judge found that it was more likely than not that "[Mr Wells] asked [Mr Devani] about his fees, and that he did reply that his standard terms were 2% plus VAT".
There was no discussion as to how and when the commission was supposed to become due. So they did not agree as to the circumstances in which Mr Devani would be entitled to that commission.
A few days later, through Mr Devani, the flats were sold, subject to contract, to a Housing Association.
It was only then that Mr Devani emailed to Mr Wells his written terms of business; that is, after the performance of the contract, to the extent that there was a contract.
Court of Appeal decision
The majority of the Court of Appeal held that the oral “agreement” on 29 January 2008 was not sufficiently complete to amount to a binding contract.
Previous cases had found that contracts with commission agents had not followed a single pattern regarding the commission payments and when they are due. Lewison LJ considered that, unless the parties themselves specify the event giving rise to the estate agent's entitlement to commission, their bargain is incomplete.
As to whether the court would imply a term stipulating the trigger event, Lewison LJ stated that “the court may imply terms into a concluded contract. But that assumes that there is a concluded contract into which terms can be implied. It is not legitimate, under the guise of implying terms, to make a contract for the parties. That is to put the cart before the horse. … there must first be a concluded contract before terms can be implied.”
They held, therefore, that there was no concluded contract between the parties before the introduction of the Housing Association to the property or, indeed, before the Housing Association made its offer to purchase. Accordingly Mr Devani was not entitled to any commission on the sale.
Our thoughts on this case
This decision does seem rather harsh on Mr Devani, who had made the introduction that led to the eventual sale.
From our reading of this judgment, it seems to us that, even if the Court of Appeal had considered it had the power to imply the terms for Mr Devani’s fee, it would have had difficulty in deciding what those implied terms should be, as courts had previously found that contractual terms in relation to commission payments can be so varied.
It is a lesson though, to ensure that before you do something for someone else, you have expressly agreed, not only what you are going to do and your fee, but also all essential terms upon which you are to be paid for what you do. In particular, if you are expecting a commission, make sure that those essential terms include the what, when, where and how of the payment.
Click here to read our comments on the 2019 decision of the Supreme Court.