Don’t let your familiarity with this document deceive you into thinking it is watertight, warns commercial property lawyer DEAN FRITH.
Baker Love has recently encountered several instances where agents’ entitlements to commission have come into question, instances that could have been avoided by proper compliance with the requirements of the standard Agency Agreement.
Section 55 of the Property, Stock and Business Agents Act 2002 (NSW) (“the Act”) requires that a written agency agreement must be prepared for all services to be performed by an agent for a client if the agent wishes to claim a commission. The written agency agreement must also comply with the requirements of the Property Stock and Business Agents Regulation 2003 (NSW) (“the Regulations”).
The Real Estate Institute of NSW standard form Agency Agreement is a document real estate agents deal with every day in the ordinary course of their business, and is vital in protecting their claim to commission. It is important that the proper policies and procedures are followed with every single client to ensure that an agent’s commission is safe.
Failure to comply with the law and follow correct procedures may prevent an agent from recovering the commission, fees or expenses. In addition, the agent may be subject to penalties for breach of the Act and the Regulations.
The standard form Agency Agreement is useful for ensuring compliance with the Act and the Regulations, but there are a number of other issues of which agents need to be aware to properly protect their right to claim commission.
1. Ensure the Agency Agreement is properly served
Once the Agency Agreement has been signed by both the client and on behalf of the licensee, the Act requires that a copy of the executed Agreement be served on the client within 48 hours of the client signing the Agreement.
For the purposes of the Act, the Agency Agreement may be served in one or more of the following ways:
- For service on an individual:
- Delivering it personally;
- Leaving it at the client’s residence with a person who apparently resides there and has apparently reached the age of 16 years;
- Posting it to the client’s residential address or postal address as disclosed in the Agency Agreement.
- For service on a company/body corporate:
- Delivering it personally to the secretary of the company/body corporate or any other person concerned with management of the company/body corporate;
- Leaving it at the company/body corporate’s principal place of business with a person apparently employed there and who has apparently reached the age of 16 years;
- Posting it to the company/body corporate’s address or principal place of business or postal address as disclosed in the Agency Agreement.
It is important to note that the Act does not provide for service of the Agency Agreement by facsimile or by email.
If the Agency Agreement is not served on the client in accordance with the Act and the Regulations, the agent may be prevented from claiming a commission to which he or she would otherwise be entitled.
2. Ensure that the person who signs the Agency Agreement has actual authority to do so
One of the fundamental rules of contract law is that a person must have authority to enter into a contract, for that contract to be enforceable. It may be the case that an adult child is organising a residential sale on behalf of his or her elderly parents, or that the registered proprietor of the subject premises is overseas or otherwise unavailable to sign the Agency Agreement. In those circumstances, the Agreement may be signed by an Attorney, but the agent should always ensure he or she sights a certified copy of the Power of Attorney document. If the validity of the Power of Attorney is in question, legal advice should be sought.
The Agency Agreement must identify the client correctly. If a family company owns real estate assets, then the Agreement should always refer to the company entity rather than the individuals; further, the person who signs on behalf of the company should indicate the capacity in which it is signed, that is, whether as a company director, secretary or other officeholder.
3. Provision of the approved Guide in a timely manner
Section 56 of the Act provides that an agent must not enter into an Agency Agreement for the sale of residential property unless the agent has provided the client with a copy of the approved Guide (titled “Agency Agreements for the Sale of Residential Property”) no more than one (1) month prior to the Agreement being signed by the client.
The maximum penalty for breach of this requirement by an agent is a monetary fine equivalent to 40 penalty units (currently $4,400.00); however, a contravention of this section of the Act does not affect the validity of the Agency Agreement.
4. Be aware of cooling off periods
Every Agency Agreement in respect of a residential property or rural land is subject to a cooling-off period. The cooling-off period commences on the day the Agency Agreement is signed by the client and ends at 5:00pm the following business day (including Saturdays).
While it is not possible to contract out of the cooling off period, it will not apply in some limited circumstances as prescribed by the Act.
5. Be open, honest and up-front
Agents’ fees and commission in NSW are deregulated and therefore are negotiable, something which is important for an agent to disclose to the client before the Agency Agreement is signed. Historically, the Courts have held that failure to inform a client that commission is negotiable may be a valid defence to an agent’s claim for commission.
Similarly, agents must not be tempted to make false or misleading statements to clients about the true estimated selling price of a property. Contravention of this requirement is punishable by a maximum fine equivalent to 200 penalty units (currently $22,000.00). Keep in mind that if a complaint is made against an agent, the agent may be required to provide evidence of the reasonableness of any estimated selling price. Failure to produce sufficient evidence within the period for compliance is an offence, and may be subject to monetary fines equivalent to 200 penalty units.
6. Completing the Agency Agreement in full
The minimum content requirements for Agency Agreements, regardless of the transaction type, include:
- Identification of the property, business or professional practice to which the Agreement applies;
- Names of the parties to the Agreement;
- Information identifying the parties to the Agreement, including addresses, business names, licence numbers, etc.;
- Client’s authority to enter into the Agreement;
- Authorisation for the agent or licensee to act on behalf of the client;
- Terms indicating the period for which the Agreement remains in force;
- Requirements for termination of the Agreement, including how and when;
- Whether the agent is entitled to reimbursement for particular expenditures; and
- Circumstances in which the agent will be entitled to remuneration (whether by way of commission or otherwise) for services performed under the agreement.
All of these minimum content requirements are included in the standard form Agency Agreement, but to ensure full protection it is important that all items on the form are completed prior to execution of the document.
In addition, if an agent elects not to use the standard form Agency Agreement, the agent must ensure that all of the prescribed terms as set out above are included in whatever form of agreement is used.
