We commented
in these columns [1990] 27 EG 83 on the recent case of Folioshield Ltd v
Pleamere Ltd [1990] 2 EGLR 1, which concerned an agreement whereby one
property company conferred on another what was described as a ‘sole letting
agency’. The arrangement was in fact a very different one from what is involved
in a conventional ‘sole agency’; it was intended rather to enable the ‘agent’
to find accommodation for some of its own tenants, whom it wished to rehouse in
order to free other property. None the less, the form of agreement used was
that of sole agency, and that is how it was construed by the court.
In any event,
the ‘Legal Note’ in question provoked a certain amount of correspondence, most
of which was concerned not with the case itself but rather with general issues
arising out of sole agencies and similar arrangements. In the light of the
interest thus shown by practitioners, it seems appropriate to cast an eye over
this subject and to attempt a general review of the legal principles involved.
A sole
agency agreement, at least in the context of estate agency, is (it appears) one
in which the agent promises, expressly or impliedly, that he will use his best
endeavours (whatever those are!) to find a purchaser for his client’s property;
in return, the client promises that he will not sell that property to anyone
who has been introduced to him by any other agent. Such agreements are
frequently expressed to last for a specified time or to be terminable by notice
— failing that, it seems that the restriction upon the client would in any
event be taken to expire after a reasonable time.
The exact
nature of the rights which are created by any sole agency agreement must, of
course, depend upon the precise wording of that agreement, but a number of
basic propositions will usually be found to apply. First and foremost, it
should be emphasised that the usual remedy for breach of such an arrangement is
not an award of the agent’s commission (since the commission-earning
event will not have taken place, or at least not have been brought about by the
agent); it is rather an award of damages, to compensate the agent for the opportunity
to earn commission of which he has been wrongfully and in breach of contract
deprived. An important practical consequence of this is that, since it can
seldom be said that the agent would certainly have earned his commission
but for the client’s breach, his lost opportunity should be valued at less than
the appropriate commission rate. Exactly what the difference should be will
depend upon all the circumstances of the case (including, for example, the
general state of the property market); however, a review of the case law on
this point suggests that under normal conditions a ‘discount’ in the region of
20% may not be too wide of the mark. In the light of this, a sole agent would
be well advised to adopt the approach seen in the recent case of Property
Choice Ltd v Fronda [1990] EGCS 95, and to provide expressly that
‘If this is contravened we will be entitled to the same commission in the same
circumstances as if we had effected an introduction’.
The second
point worth making is that a client who appoints a sole agent does not, in the
ordinary course of events, give any kind of guarantee that he will actually
agree to sell the property at all. His obligation is simply the negative one of
not selling to persons introduced by rival agents; in spite of some unguarded
remarks by Ewbank J in the case of Glentree Estates Ltd v Gee
(1981) 259 EG 332, which might suggest the opposite, it is suggested that a
vendor who simply decides to withdraw his property from the market does not
thereby commit any breach of his agreement.
rights
It is clear
law (the relevant authority is Bentall, Horsley & Baldry v Vicary
[1931] 1 KB 253) that a ‘sole agency’ agreement does not in itself preclude the
client from selling his property privately. If the restrictions upon him are to
extend to private sales, this must be carefully specified in the agreement.
‘Sole right to sell’ is a fairly common form of words used for this purpose,
while the phrase which was held to be effective in Chamberlain & Willows
v Rose [1931] 1 KB 261 (the leading case on this point) was: ‘The
property to be left solely in your hands for sale.’ Some agents, indeed, have gone even further
in endeavouring to bring home to the client exactly what his position is by
inserting in the form of instructions to be signed by the client some such
phrase as ‘thus excluding my own right to sell’.
What has not
yet been made clear by litigation is the extent of the protection which is
given to an estate agent by the phrase ‘sole selling (or sole letting) agent’.
There seems little doubt that, among estate agents themselves, there is a
widespread belief that this is equivalent to ‘sole selling rights’. None the
less, while such a view gains some support at least from remarks passed by the judge
in the case of Brodie Marshall & Co (Hotel Division) Ltd v Sharer
[1988] 19 EG 129, logic suggests that use of the word ‘agent’ ought to render
this equivalent to a sole agency. Given the uncertainty, the sensible course
for any agent who wants the wider rights is to ensure that they are spelled
out.
An
alternative drafting approach on this particular point may be seen in the case
of Property Choice v Fronda, which was mentioned above on another
issue. The client in that case was required to agree expressly that he ‘will
not consent to sell the property to anyone not introduced by [the agent]’. This
was held by the Court of Appeal to cover not only applicants introduced by
other agents but also those reaching the client privately; furthermore, the
court ruled that the client was in breach of his obligations as soon as he
accepted an offer from such a person ‘subject to contract’ (and not merely when
contracts were exchanged). However, the benefits which this ruling gives to a
sole agent seem largely illusory, since the Court of Appeal also held that,
unless negotiations between the client and the offending applicant progress
past the ‘subject to contract’ stage, the agent will have suffered no loss and
will accordingly be unable to claim damages for his client’s breach.
clauses
As a
variation upon the theme of ‘sole agency’ rights leading to an action for
damages, a number of agents have, over the years, attempted to stipulate for
the payment of their actual commission if the property is sold during the
currency of their agreement, regardless of how the sale comes about. In order
to achieve this, the agent must of course overcome the normal principle
governing the earning of commission, namely, that he must be the ‘effective
cause’ of the transaction in question, and the courts have proved somewhat
reluctant to permit this, at any rate where the wording used is at all
ambiguous. In the case of Sadler v Whittaker (1953) 162 EG 404,
for instance, where a sole agent’s terms of business stated that commission
would be earned ‘should a sale be effected’, it was held that this meant
effected by the agent; hence, when the client sold his house privately,
the agent was entitled to neither commission nor damages.
Whether the
addition of a phrase such as ‘however effected’ would be sufficient to displace
the normal rule is open to considerable doubt. However, what clearly will
suffice is the form of words commonly used by auctioneers, who invariably seek
to protect themselves against a private sale of the property either in the
run-up to the auction sale or for a period following an abortive sale. In Barnard
Marcus & Co v Ashraf [1988] 18 EG 67, the Court of Appeal was
required to interpret a clause in the plaintiffs’ terms of business which
stated that they would be entitled to commission ‘if a sale of the property,
whether arranged by the auctioneers or not, is effected . . .’. The vendor sold
his house through another agent two weeks before the auction was due to take
place, whereupon the Court of Appeal (following the earlier decision in Bernard
Thorpe & Partners v Snook (1982) 266 EG 440, in which the client
had sold privately after a failed auction) held that full commission was
payable.
