Anyone who has bought or sold a house will know the feeling: if it looks as though an agent has a serious buyer, you don’t want the chance to slip through your fingers. And if there might be awkward issues about who gets the commission, you feel you can work that out later. And then “later” arrives …
A recent case heard by the high court offers valuable insights into understanding, first, the implications of a mandate signed with an estate agent and, second, how to determine who is entitled to such commission where more than one agency is involved.
This case involved two estate agencies, City and Atlantic Real Estate CC t/a RE/MAX and Kapstadt International Properties CC .
The case heard by the high court and decided just before the December holiday season break, illustrates how easily a problem like this can arise, the difficulties and expense involved in resolving it — and the inevitable disappointment for one of the agents dealing with the sale.
Micheal and Alison Smith decided to sell their Camps Bay home and concluded a written joint mandate with RE/MAX and Kapstadt on 21 September 2021 to market the property. The mandate did not specify a purchase price and would remain in force until 5pm on 30 April 2022.
The mandate included that if the property was sold by RE/MAX or was sold to anyone introduced by RE/MAX during the mandate period, RE/MAX would be entitled to the commission being 3.5% plus VAT of the purchase price.
RE/MAX invited one of its clients, James Pears, to view the property. They facilitated several viewings with him, including viewings to which Pears brought his adviser and his parents. Pears made an offer that fell short of the asking price. RE/MAX then informed Pears that the Smiths had accepted an offer made by an American purchaser introduced by Kapstadt. Pears returned to London indicating that he would not increase his offer.
The transaction with the American purchaser was abandoned because he could not fulfil the terms of the transaction.
In about February 2023 the Smiths accepted a second offer from Pears. Alison Smith left a voice message informing the RE/MAX agent that a Kapstadt agent had contacted her to arrange for a client to view the property and that the client was Pears. Alison Smith said she had told the Kapstad agent that Pears had been introduced to the property by RE/MAX.
The Smiths were happy that they had secured a buyer, and Pears was happy to have the property at a price he was prepared to pay. But which agent should get the rather large commission of R966 000 (VAT inclusive)?
RE/MAX said it was the agency that had introduced Pears to the property, and claimed the commission from the Smiths. Kapstadt’s view was that the joint mandate had expired, and that the property was no longer listed for sale on the RE/MAX website nor was it being marketed by them. RE/MAX disputed these claims
It’s interesting that the Smiths obviously had some concern about who should get the commission, and when they negotiated with Kapstadt, the Smiths insisted on an indemnity from Kapstadt that they, as the sellers, would not be liable for any claim brought by RE/MAX or the commission. This indemnity seems to have alleviated any fears the Smiths may have had about subsequent claims from RE/MAX.
The judge pointed out that many previous decisions by the courts have confirmed that the main factor to determine whether an estate agent is entitled to commission is whether they were the effective cause of the sale and, importantly, whether such agent was mandated at that time.
If an agent, properly mandated at the time, introduces a client to a property and that client later buys it, then the agent is entitled to commission. This was so, the courts have held, even if the sellers cancelled the agent’s mandate in the meantime. What counts is whether there was a valid mandate at the time the introduction was made.
This will thus involve a factual determination of whether the agent made the introduction of the purchaser to the property and whether the agent was mandated at the time.
Kapstadt argued that the property was eventually sold to Pears more than 90 days after the initial mandate period had expired and consequently it has a “direct financial and legal interest in the commission which it claims is owed and due to it”. This was not disputed by the Smiths. But Kapstadt had indemnified the Smiths against any claim that RE/MAX might have against them for commission. The high court also noted that Kapstad’s reliance that the negotiations between Pears and RE/MAX had broken down was not sufficient.
Given the long-standing principles laid down by the courts regarding the effective cause of a sale, the decision confirmed that case law favours RE/MAX and therefore found that the commission had to be paid to them and found them to be the effective cause of the sale.
The judge said that, with hindsight, the Smiths ought to have insisted “that Pears engage with RE/MAX rather than accepting the offer via Kapstadt, especially since they were fully aware of the prior involvement of RE/MAX”.
It is true that if the Smiths had pointed Pears back to RE/MAX it would have avoided subsequent litigation. But it’s also easy to understand that the Smiths feared losing the sale. They had been trying to sell the property for a long time and there had been no other offers.
For them, the indemnity that they asked for and obtained from Kapstadt must have seemed the option.
It is evident from the above case that it is crucial that mandates be clear and unambiguous, especially in cases where joint mandates are involved. Sellers can protect themselves by requesting an attorney to check the wording of the mandate before signing it and they could possibly request a list of all potential purchasers introduced to the property by a specific agent.
Estate agents also need to take special care and to ensure that they document their efforts in introducing parties to a property because this will be vital in determining the effective cause of the sale at a later stage. As demonstrated in the judgment, they need to be able to prove that their efforts were the primary factor in effecting the sale and that there was a valid mandate at the time.
The judge also noted that this dispute would have been better suited to dispute resolution mechanisms. A skilled mediator with experience in property matters may have been able to resolve the dispute in a cost-effective manner.
Anja Bothma is a director at Herold Gie Attorneys.