Estate Agent’s Commission: “Effective Cause” Is Not Enough

estateBoth property sellers and estate agents need to know the downside of not recording, clearly and in writing, the exact circumstances in which a seller must pay commission to an agent.

The agent’s claim: R500k

To illustrate – in a case recently before the High Court, an agent claimed to have a verbal mandate from the seller of an industrial property to sell it for R5m.  The agent believed that if he found a buyer for R5,5m he would be paid the excess R500,000 as commission.  He duly found a buyer at R5,5m but the buyer and seller cut him out – they concluded their own sale agreement at R5m with no provision for commission.  The agent duly sued the seller for R500,000 commission.

The law ……

The agent was able to convince the Court that he was indeed the effective cause of the sale, but his claim for commission failed because he was able to prove neither the basis of his “entitlement to commission” nor “the manner in which such commission was to be calculated”.

So although you might think it enough for you as an agent to prove that you were the “effective cause” of a sale that is not so.  There are still grey areas in our law here, and each case will be different, but as a general rule you are going to have to show that –

  1. You have a mandate from your principal (usually the seller)
  2. You have performed that mandate
  3. You are the “effective cause” of the sale
  4. The commission you claim is set or calculated as agreed.

….. the risks …..

Uncertainty is your enemy here.  As an agent, you risk receiving no reward for your hard work.  As a seller, you risk paying commission you didn’t budget for (even perhaps double commission if multiple agents have been working on your property).

….. and the remedy

Whether you are the seller or the agent – avoid the risk, delay, cost and aggravation that this sort of dispute will always cause you.  Ensure that a written, clear and comprehensive mandate agreement is signed by both of you before any marketing takes place.

Ashersons Attorneys

Ashersons Attorneys

Industry news and noteworthy articles from a boutique corporate law firm in Cape Town, South Africa

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