InsightsInsight - Property and Conveyancing - POSTED: February 24 2020
How to avoid disputes about payment of land agents’ fees
Disputes often arise relating to the payment of land agents’ fees.
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Disputes in this area usually arise where there is lack of clarity between the parties regarding when and how much a land agent is to be paid and what work the agent is expected to do in order to secure their fee before they begin work on selling a property.
The Court of Appeal case of Barton v Gwyn-Jones serves as a useful reminder of the issues which can arise, and how to ensure that the parties are clear from the outset what an agent’s fee will be and what work they are expected to do to achieve this.
Case study: Barton v Gwyn-Jones
A company agreed to pay an agent a fee of £1.2 million if the agent sold the company’s property for £6.5 million to a purchaser who was introduced by the agent. The agent found a buyer, and the property was ultimately sold to that buyer. However, the sale price was £6 million – £500,000 short of the target price set by the company seller in the contract. The agent claimed his fee – but the company refused to pay it, or any fee at all, saying that the agreed target price had not been met.
The agent tried to claim a fee based on the doctrine of unjust enrichment, arguing that the company had financially benefitted as a result of the sale he had set up.
However, there is a legal principle, known as the Costello principle, which prevents a party from relying on the doctrine of unjust enrichment where the parties had put in place contractual arrangements which were to govern what was to take place, and how the agent was to be rewarded for the work they undertook.
The agent, therefore, had to overcome the Costello principle if he was to get paid for the work he had undertaken. Fortunately for the agent, the court, in this case, decided that the Costello principle did not apply.
The court said that the parties had not agreed in the contract what the agent was to be paid if he introduced a buyer of the property, albeit at a lower purchase price than the target price of £6.5 million. There was nothing in the agreement which stipulated that the agent was to get nothing unless the property achieved the target price of £6.5 million – the contract between the company and the agent was silent on what would happen in these circumstances. The court, therefore, ordered the company to pay the agent a fee of £435,000 on the basis of unjust enrichment.
Why is this case important?
This case serves as a useful reminder to ensure that if you instruct a land agent, you should ensure that the terms of their appointment are clear and cover the eventualities which may arise. In particular, the circumstances in which the agent is to be paid and the level of their fee should be crystal clear to everyone.
If you need any help with instructing an agent or guidance on how to structure his fees, please get in touch with our team.
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