Disputed claim by estate agents for commission for acting on behalf of intending lessees of office premises–Agents not retained by lessors–Agreement by intending lessees to pay commission if agents found a property suitable in respect of locality, content and price and lease entered into in consequence–Agents not empowered to negotiate terms of lease–Agents’ introduction held to be effective cause of transaction despite lessees’ earlier knowledge of property–Question of appropriate fee–Quantum meruit as RICS Scale 24 did not apply–Critical observations on scales–One quarter of scale fee awarded
This was an
action by Reiff Diner & Co, estate agents, of New Bond Street, London W1,
claiming from Catalytic International Incorporated, construction engineers,
commission alleged to be due to the plaintiffs in consequence of the leasing by
the defendants of premises at Fanum House, Leicester Square, London WC2, the
former headquarters of the Automobile Association. The events giving rise to
the claim are fully set out in the judgment.
P Sheridan QC
and S A Nathan (instructed by Culross, Lipkin & Co) appeared on behalf of
the plaintiffs; N A Phillips and Robert Webb (instructed by Linklaters &
Paines) represented the defendants.
Giving
judgment, JUDGE LAUGHTON-SCOTT QC said: In this action, the plaintiffs, who are
a firm of estate agents, claim from the defendants a very substantial sum as
the commission asserted to be due to them on the entry by the defendants into a
lease of premises at Fanum House, Leicester Square, London WC2. That lease was
dated March 17 1977 and was for a period of 10 years from December 25 1975. The
claim covers, additionally, commission in respect of options to take further
parts of that property which were exercised by the defendants shortly after
their entry into it.
The matter
comes about in this way. The defendants are an international company of
construction engineers specialising in oil-field equipment and industrial
plants and are based in Philadelphia, Pennsylvania, in the United States of
America. For some 22 years they have carried on a branch of their business in
London. In 1974 they were lessees of premises in Kingsway, WC2, and two other
nearby office premises into which their expanding business had required them to
extend, but the lease of their main premises was due to expire at the end of
1975.
In the autumn
of 1974 they began searches for new premises which could accommodate their
London enterprise under one roof. The task of discovering a suitable place was
delegated in turn to a number of their directors and employees under the
general supervision of their local president and director, W E Hesler. He saw
over a number of properties as early as November 1974, but was content to leave
detailed questions of research to his subordinates, who acted successively in
that capacity in the persons of Mr Lewis, an accountant, Mr Gore, their manager
of procurement, Mr Gilmore, their vice-president and director, and finally,
from the end of August 1975, Mr Parsons, a draftsman.
On November 20
1974 Mr Hesler inspected Fanum House, which was then at the beginning of a
process of redevelopment after it had recently ceased to be the head office of
the Automobile Association. That property was at that date to be let either as
a whole, comprising some seven floors and 117,000 sq ft of office space, or as
sub-divided units. Its letting had been placed in the hands of two joint sole
agents, Healey & Baker and Michael Laurie & Partners, and at that time
these agents were asking
introduced to the property by the former of these two agents, and looked around
it under their guidance. The defendants needed only some 30,000 to 40,000 sq ft
or so and were at that point hopeful of finding an entire building with about
that area of accommodation which could be called after the name of their
company. The asking rent at Fanum House was certainly much higher than the
defendants were willing to pay, and the building lay in an area more generally
devoted to entertainment than business purposes. Their overtures in relation to
this building then ceased until much later, although the letting agents
continued hopefully to approach them from time to time. 1974 was a bad period
for business generally and the property boom was passing, so the defendants,
with time to spare, were content to look elsewhere.
In the months
that followed, they made enquiries of a number of estate agents, and by the
summer of 1975 had accumulated a large quantity of brochures and other
literature about properties to let in central London. In May 1975 the
defendants heard of a property which might suit them. This was a 52,000-sq ft
building called Grosvenor House, Drury Lane, WC2, which is not, of course, to
be confused with an hotel of that name in Park Lane. The letting agents were
the plaintiffs, who were asking for that property a rental of only about £6 per
sq ft per annum, which precisely coincided with the defendants’ calculations.
It had previously been the headquarters of a large firm of theatrical
costumiers and was itself in the process of redevelopment. It was advertised as
being suited to office, showroom and commercial space and stood in an area in
which planning permission for entire office user, which was the defendants’
requirement, was not easily to be obtained, but the building was likely to be
ready for occupation by October 1975, and it is not surprising that the
interest of the defendants in it was quickly aroused.
On June 12
1975 the plaintiffs by their partner, Mr Diner, sent a list of four other
properties to the defendants which they thought might interest them. He thought
the defendants would not get planning permission for their intended user of
Grosvenor House. This letter was not replied to, but the defendants continued
to show an increasing interest in Grosvenor House. On July 18 Mr Diner sent the
plaintiffs a list of seven properties, adding this comment: ‘With regard to
these properties, we are unable to be retained, and would therefore confirm
that in the event of your company entering into a contract to take any of these
buildings, we will be looking to you for the payment of a scale commission.’
On July 28
1975, in a letter which has been lost, the plaintiffs wrote to the defendants
offering them property at Greater London House, Hampstead, NW1, including, it
is reasonable to assume, a similar formula. A reply dated August 1, which has
survived, showed a disinterest in this property because of its location, but
without making any reference to the question of commission. Meanwhile, the
defendants had advanced, subject to contract, an offer to take Grosvenor House,
and it is clear, in my judgment, that had planning permission been forthcoming
they would in all likelihood have become the tenants. Shortly before August 1
the defendants held a meeting with the Greater London Council planning officer,
at which they staged quite a costly and elaborate demonstration of their
intended user of that property. On that very day, Mr Reiff, the other of the
plaintiffs’ partners, wrote a letter to the defendants in the person of Mr
Gilmore, offering the plaintiffs’ services to them as sole agents to obtain
another property if the Grosvenor House proposal proved unacceptable to the
planning authorities, on the basis of half fees related to the scales laid down
by the Royal Institution of Chartered Surveyors, plus reimbursement of
advertising costs. That letter also was not replied to.
On about
August 25 1975 the planning authority informed the defendants that planning
permission would not be granted for their proposed user of Grosvenor House.
This put them into a position of difficulty. They had precisely four months,
not only in which to acquire new premises, but also to move into them, with all
the necessary adaptations required to be completed. They were galvanised into
action and appointed their employee, Mr G Parsons, to work full-time in
accordance with a written directive dated August 27 signed by Mr Gilmore, for
the purpose of discovering suitable premises. His contacts with the plaintiffs
are crucial to this dispute.
On Wednesday,
September 3, Mr Parsons telephoned Mr Diner and what transpired then is not
really in dispute. Mr Parsons announced that he had been appointed to find new
headquarters for his company as the negotiations about Grosvenor House had
proved abortive, and it was very urgent that he found premises for the company
to move into by the end of the year, and asked Mr Diner to send him the details
of anything that Mr Diner considered suitable. Mr Diner constructed a letter
dated September 4 1975 setting out 17 properties, including Fanum House, which
Mr Diner did not know, and could not have known, Mr Hesler had already seen
some 10 months before. The letter ended with a repetition of the formula
previously referred to and this letter was taken by Mr Diner to a meeting with
Mr Parsons on the following day, September 5 1975.
Until taking
up his assignment Mr Parsons had had no experience or training whatsoever in
dealing with estate agents or with the complexities of business. He was a
draftsman employed on a modest salary, who seems to have been selected for this
duty simply because he had experience in office layout and design. His
competence for the task assigned him is perhaps best to be gauged by the fact
that he set about looking for vacant properties by walking about the streets of
London to observe estate agents’ boards, and by selecting estate agents to
approach who happened to be advertising in the evening newspapers. Apart from
the directive given him by Mr Gilmore, he was merely supplied with a filing
cabinet full of estate agents’ literature previously received by the company
which, in his expressive phrase, was ‘all higgledy-piggledy.’
At the meeting
on September 5 it is common ground that Mr Diner went through his list of
properties and then referred to the formula at the end, stating that if
business resulted through this introduction commission would be payable. Mr
Diner then asked Mr Parsons if he had read Mr Reiff’s letter of August 1, and
asked if the defendants were prepared to give his firm sole agency. Mr Diner
gave evidence to the effect that Mr Parsons replied that he was not at that
stage prepared to appoint them as sole agents, but he expected only to deal
with the plaintiffs. Mr Diner also gave evidence that he told Mr Parsons that
if business did result from any introduction of his, the defendants would have
to pay commission, to which proposition Mr Parsons agreed. Mr Parsons’ version
of what happened differs from this. He agreed, at least at first, that he said
that if the defendants did retain anyone, it would be the plaintiffs, but added
that he did not understand Mr Diner to ask him for commission, even if he was
appointed as sole agent. ‘I told him,’ he said, ‘we weren’t going to pay them
commission.’ This second version of that
meeting compares unhappily with a letter written later by the defendants’
lawyer D C Head who, on October 10 1975, replied to the plaintiffs’ claim for agreed
commission after an ample opportunity of seeing Mr Parsons, which makes no
mention of Mr Parsons’ refusal to pay commission, just as it does with Mr
Diner’s active efforts on behalf of the defendants, who on several occasions
afterwards took Mr Parsons at his request around premises which might prove
suitable to the defendants. Mr Diner had no prospect of obtaining any
commission from lessors’ agents, and it seems hardly likely that he would have
exerted himself if his efforts were to go totally unrewarded. On that meeting I
prefer the evidence of Mr Diner. Even if Mr Parsons did not specifically agree
to pay commission, he certainly, in my judgment, did so by his conduct then and
later.
Mr Gilmore
assured the court that he had given the most explicit instructions to Mr
Parsons to tell estate agents that they would get no commission from his
company. He omitted
easily have done so. I do not accept that this instruction had been made clear,
at least by September 5. Mr Hesler in his evidence stated that he had given
specific instructions that the defendants were not to employ estate agents for
acquiring property, because, as he said, ‘We considered we had an in-house
capability.’ But it transpired that this
instruction was given as early as November 1974, when a very different
situation confronted his company from that in September 1975. I do not consider
that this instruction was ever made clear to Mr Parsons in early September 1975,
who gave me the impression of being a person over-anxious to please everyone
and was quite likely to have been amenable to Mr Diner’s request, or at least
to appear so.
Two other
matters of significance emerged at that meeting. The first was that when Fanum
House was mentioned by Mr Diner Mr Parsons did not say that he already knew of
it. There was a good deal of evidence that the brochure on this building was
for a long time lying in Mr Hesler’s office. From this, the likelihood is to be
concluded that very little, if any, documentation on that property was
available to Mr Parsons at the outset of his enquiries. Moreover, I think that
at the time Mr Parsons took over these duties, there were two lists of
properties considered for possible acquisition by the defendants in existence
and no others. These did not include Fanum House. This and many other questions
relevant to the documentation available to the defendants at all material times
is largely obscured by the unfortunate fact that Mr Parsons destroyed all
papers pertinent to the defendants’ searches for new premises when the
defendants left Kingsway, and this happened despite the fact that the present
dispute was then current.
The second
important thing at that meeting was that Mr Diner’s letter of September 4
included, in a reference to Fanum House, the fact that he had discovered
through his enquiries that it might be possible to obtain a lease of the
premises at a commencing rent of £8.50 per sq ft per annum, which very much
more closely accorded with the defendants’ preparedness to pay than did the
lowest price hitherto quoted to them for the building at about £11 per sq ft.
On the
following Monday, September 8, Mr Diner took Mr Parsons, at his request, round
a number of properties, including Fanum House. By then, its internal
reconstruction was nearing completion. Mr Parsons asserted in evidence that he
had already heard of Fanum House through a number of estate agents, but the
fact is that he chose Mr Diner to take him there. He had heard of the
plaintiffs through Grosvenor House, and there was, he agreed, a special
relationship between them and his company which was considerably more friendly
than that with any other estate agents.
On September 8
and 9, Mr Diner sent Mr Parsons details of yet more properties in documentary
form, again adding his conventional formula about commission, and at about this
time Mr Parsons began drawing up a short list of properties which appeared to
be the most suitable to him. These included Fanum House, but I find that that
property was not added to that list until after September 18 1975. If it was,
it seems likely that the defendant company informed the estate agents, Healey
& Baker, inaccurately on that matter.
On September
18 Mr Diner took Mr Parsons to yet another property, called Enford House,
Marylebone Road, NW1, and later to yet more properties, until finally, at Mr
Parsons’ request, he took him and Mr Hesler on October 1 1975 to see a property
at 68 Newman Street, W1. During this visit Mr Diner heard Mr Hesler comparing
that property with Fanum House. He realised that in his absence Mr Hesler had
been there without informing him, and saw fit to raise the subject of his
commission. Although there were three distinct versions of how that
conversation continued, it is clear that Mr Hesler made out that he had seen
the property long before, which would disentitle Mr Diner to any commission in respect
of it.
Directly after
that meeting Mr Diner wrote a letter to Mr Parsons pointing out that his firm
expected commission on any letting of Fanum House to the defendants. The reply
to that letter, which was written, after some delay, on October 10, by Mr Head,
a letter which is already referred to earlier in this judgment, included this
comment: ‘As it so happens, it seems probable that this company will not take a
lease of any of the properties mentioned by you in correspondence. The question
of a fee to you is therefore likely to be academic.’ This was perhaps unfortunate, since three
days later a draft of an offer for that very property, or part of it, was
prepared for Mr Hesler, who despatched it to Michael Laurie & Partners, the
lessors’ agents, on the day following. Two similar other properties, it is
true, were advanced elsewhere at the time, but a bargain was struck over Fanum
House, which by October 22 had been virtually concluded.
Before
consideration is given to the issues in the case, a word is needed about the
question of estate agents. Since the evidence about this was advanced only from
the plaintiffs themselves and was left uncontradicted, the conclusions here
reached can hardly be regarded as definitive. This seems to be the position: an
estate agent may accept instructions from any intending vendor or lessor of
property. He can do so either as sole agent, in which event he gets an
entitlement on any sale or lease to scale commission, whoever is instrumental
in effecting the contract; or as joint sole agent with another, when each gets
three-quarters of the scale fees, whoever effects the contract; or merely act
as one of a number of agents of whom only the party successful in bringing
negotiations to fruition can recover commission. In each event he is, however,
regarded as ‘retained’ by the introducing vendor or lessor. An agent may also
receive instructions from an intending purchaser or lessee. He may, if he can
achieve it, arrange with the selling or letting agents to receive a share of
their own prospective commission. In that event he is to be regarded as
‘retained’ for the purposes of introductions to the property and he is not then
allowed to look for any further commission from his own client. If, however, he
is not successful in establishing any such retainer, he may then, and only
then, look to his own client for commission. The expression frequently used by
the plaintiffs in correspondence, ‘properties for which we are not retained,’
specifically meant that they could look for commission to the defendants if any
introduction of theirs was effected for the defendants’ purposes.
Mr Parsons,
who made contact with a large number of agents, said that they all used this
phrase. He had no idea what it meant and did not trouble to ask. He had a
somewhat vague idea that if estate agents acted for his company they would get
commission from the letting agents, but he failed to point this out to the
plaintiffs. Nor, incidentally, did he tell the plaintiffs that he was in touch
with a large number of other estate agents.
One question
of fact is outstanding and should here be resolved. It was suggested to Mr
Diner that he approached Michael Laurie & Partners for commission in
respect of any lease to be granted for Fanum House. An implication in that
suggestion may have appeared to have been that Mr Diner was trying to extract
commission from both sides. He rejected it vehemently. Evidence was called that
he or his firm did so act. What I consider happened was that the plaintiffs did
inquire of this through the lessor’s agents as a normal routine before
advancing property to the defendants, which they did only after they had a
clear understanding that no shared commission would be payable from Michael
Laurie & Partners.
I now turn to
the matters in dispute. First comes the question of whether Mr Parsons had any
real or ostensible authority to make any contract with an estate agent
involving payment of commission. On this point, the defendants rely, inter
alia, upon the directive of Mr Gilmore dated August 27 1975. In this, Mr
Parsons’ instructions were placed under five heads, including one to make
contacts with estate agents to seek available office premises. There was no
restriction against employing estate agents, but merely a general statement at
the end of the document
negotiations.’ In my judgment this
referred, and was intended to refer, to the contractual negotiations preceding
any agreement for a lease. Mr Gilmore may at some later stage have prohibited
Mr Parsons from paying estate agents, but I do not consider that that can have
occurred until well after September 8 1975. Mr Parsons had a wide brief of
instruction and a good deal of technical knowledge, at least about the internal
layout of office buildings, which would have been apparent to any estate agent,
although his ignorance of business matters would not necessarily have been so
obvious. In my judgment, he had at least an ostensible authority to make a
contract with estate agents.
Second comes
the question of whether any contract was made between the parties. In view of
the findings already set out in this judgment, my conclusion is that Mr Parsons
made a contract with Mr Diner whereby Mr Diner undertook to act for the defendants
as estate agents for reward. The matter can be expressed as shortly as that.
Third comes
the question of what were the terms of that contract. My conclusion here is
that the contract made was for the plaintiffs to discover or reveal and present
a property suitable for the defendants in terms of locality, content and price
for leasing for their business premises in consideration for which, if they
entered into a lease of such property, the plaintiffs would receive fees based
on the scale laid down by their professional body, the Royal Institution of
Chartered Surveyors. By this agreement, I do not find that the plaintiffs were
employed to enter into any contractual negotiations as to the terms of any such
lease. Such negotiations mean negotiations with the opposite party, that is,
the intending lessor or his agents: see Hoddell and Others v Smith
(1976) 240 Estates Gazette 295. There is no evidence to support such a
provision, such as, for instance, any request of the plaintiffs to attempt to
reduce any asking rent, and, on the contrary, there is much evidence to show
that the defendants regarded themselves as fully equipped to do their own
negotiating.
Fourth comes
the question of whether the plaintiffs earned any right to commission–a
question complicated by the fact that the defendants, in the person of their
president, Mr Hesler, had inspected the relevant property as early as November
1974 and were informed of its availability from time to time between then and
July 1975. It is clear from the authorities that the plaintiffs cannot succeed
at all unless they can prove that their introduction effectively caused the
transaction.
The burden of
the defendants’ case was that from the very first they regarded Fanum House as
a good proposition and had it constantly in mind, so that, when they finally
decided upon it, they were doing no more than opting for a property which
always, in their opinion, would have proved an excellent solution to their
problems. It was, said Mr Hesler, ‘a great property.’ The plaintiffs, on the other hand, aver that
Fanum House was virtually rejected by the defendants when they first saw it
and, were it not for the defendants’ reintroduction to it by them, their
intentions in regard to it would probably have remained dormant. The facts were
that when Mr Hesler first saw Fanum House he had in mind a very much lower rent
than £12 to £14 per sq ft. Also, as he agreed in evidence, the location was not
entirely satisfactory. Undoubtedly, the defendants made no advances to the
letting agents at all until the autumn of 1975, and although Mr Hesler
impressed upon me that he and others had had this property constantly in view,
there is very little documentation to illustrate their interest. The letting
agents, Healey & Baker, did send them a number of letters and details
starting on April 30 1975, but such reactions from the defendants, as they
themselves recall, were either lukewarm or negative, and certainly none of
Healey & Baker’s letters received any reply. In July 1975 these agents were
told that the defendants had about £6 per sq ft in mind as the maximum rental
they would pay, and at that date it seems probable that the landlords of Fanum
House were unprepared to drop below about £11 per sq ft. Even a document dated
as late as September 18 1975 records Mr Hesler as holding the view that he did
not like Leicester Square, although it was said that the defendants would
include Fanum House on their short list. Mr Parsons, who did not come on the
scene until about then spoke of Mr Hesler saying that the area was ‘seedy.’
In my
judgment, although the defendants knew of the existence of Fanum House and its
letting capacity, their attraction towards it was only stimulated by two
factors. These were the emergency of their predicament in September 1975, and
the fact that it had by then been brought to their notice by Mr Diner that a
rental of £8.50 per sq ft per annum was for the first time being entertained by
the landlords; a fact which also for the first time made the proposition
feasible to the defendants. I consider that any interest which the defendants
displayed over this property did no more than glimmer initially and then,
especially while the Grosvenor House negotiations were in progress, became
virtually eliminated.
I find as a
fact that when Mr Parsons was first introduced to the property on September 5
1975 any knowledge he had of Fanum House was at best sketchy, and probably
non-existent, and even if he had any present knowledge of the property he would
have disregarded it at that point as being outside his company’s price range.
His approach to Mr Diner, and Mr Diner’s information, created an entirely fresh
interest in that property which enabled negotiations to be opened at a stage
within the defendant’s time and price scale. It follows that Mr Diner’s
introduction was, in my view, effective to bring about an agreement for the
lease of Fanum House and effectively caused that transaction.
Lastly, I turn
to the question of the remuneration which the plaintiffs are entitled to
recover. The parties agree that this must either be the appropriate scale
already indicated, or, if no such scale is appropriate, then on the basis of a quantum
meruit. The relevant scales are to be found in the Royal Institution of
Chartered Surveyors’ Scales of Professional Charges, reprinted July 1975,
clauses 19 and 24, where the pertinent passages read:
On letting
unfurnished premises . . . (1) Where the letting is for a term certain of 12
months or more, 10% on one year’s rent . .
For
negotiating a tenancy or lease when acting on behalf of the tenant or lessee: (a)
for seeking and negotiating the tenancy or lease of a property on the
instructions of a client: the fee payable for a letting of the same property
under the appropriate letting scale [ie 10%] . . . (b) For negotiating
the tenancy or lease of a particular property on the instructions of a client:
three-quarters of the fee payable for a letting of the same property under the
appropriate letting scale.
It is tempting
upon the findings in this judgment pertaining to the terms of the contract to
infer that the scale laid down provides room, upon a proper construction, for a
determination that an agent employed only to seek property should receive
one-quarter of the scale fee. Both counsel reject this view, and in my judgment
rightly, because seeking and negotiating, and negotiating for the lease of a
particular property, are not quite one and the same thing. Counsel for the
defendants argues that pure seeking is outside the scale altogether, and
counsel for the plaintiffs argues that the whole 10 per cent is payable,
because the plaintiffs’ activities were bound to include an element of
negotiation. If not, he asserts, then likewise the scale does not apply.
Because of my
findings on the scope of the contract, I conclude that this scale does not
apply and, therefore, in its place a quantum meruit must be considered.
What should this be? It should be
something which fairly rewards the work which was done. In my view, the scales
referred to give little assistance on this question. They seem, if I may say
so, primarily designed for application to quite modest transactions rather than
for commercial dealings on very expensive business properties. Whereas for
purchasers of real property sliding scales are provided to take account of the
purchase price, for tenancies and lettings they are not. Moreover, it is
perhaps a little surprising to observe that the remuneration for letting, with
all the costs of advertising and so forth which are involved, is the same as
for seeking and
particular tenancy or lease of a particular property. It is also perhaps rather
strange that these entitlements should so exactly or nearly approximate when in
the first instance the interests of the principal and agent combine, and in the
second they may conflict: the more the client has to pay, the more his agent
receives.
Having said
that, regard must be had not only to the great body of knowledge that the
estate agent must amass in order to be enabled to serve his client at short
notice, much of which is inevitably wasted, but also of the trust that he must
create and retain with other members of his profession in order to gain an
insight into the information available to them. It is clearly a hit-or-miss
occupation, including many expensive misses.
Mr Phillips
argues that the smallest appropriate sum which should be awarded if damages are
to be recovered, is one-quarter of the scale fee. Although I think that the
plaintiffs did act promptly and efficiently in this transaction, I do not
consider that they had a very onerous task to perform, compared with the
obligations arising in many similar transactions, before this contract was
broken by the defendants, and that a remuneration equal to one-quarter of the
scale fee is fair to both parties. Fanum House had been on the market for long
previously and its availability was well known. The fact that this happens to
coincide with the possible construction of the Royal Institution of Chartered
Surveyors’ scale fees, already referred to, is coincidental and irrelevant. The
plaintiffs have abandoned their claim for certain declarations, and the
defendants take no point on the plaintiffs’ claim being equally referable to
the options exercised by the defendants at Fanum House.
It must follow
that there will be judgment for the plaintiffs in the sum of £7,095.60,
representing 2 1/2 per cent of the first year’s rent for those parts of Fanum
House which the defendants entered as tenants in the autumn of 1975.
