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Implications of the Foxtons' case

by Eddie Goldsmith

Agent A introduces a seller to a buyer and fails to close the sale. Agent B is appointed and succeeds, so should agent A get a fee? The Court of Appeal says no, but what are the implications of its decision?

Foxtons is no stranger to controversy. The agency is being sued by the Office of Fair Trading over its letting arrangements with landlords. In May it lost a separate case it had brought in the Court of Appeal that poses serious implications for the future incomes of all UK estate agents.

Agents are no longer entitled to a fee on a sale that ends up being made through a rival joint agency, rather than through them.

Foxtons agreed to advertise a property in October 2004 for £1.4m as the sole agency. It introduced the buyer to the seller but no deal was reached.

The seller then appointed Hamptons as a joint agency.

The buyer Foxtons had introduced later agreed to buy the property through Hamptons. Foxtons cited a clause in the contract stating that it was due commission if the vendor ‘at any time’ sold to a buyer that it had introduced.

Clause in the contract

Three senior appeal judges said that Foxtons was not entitled to its £20,000 fee. This Court of Appeal ruling makes clear that commission is only payable if the litigant had already persuaded the buyer to make the purchase.

If that buyer then goes away and later makes an offer through another agency, the litigant cannot demand a commission.

The court found that Foxtons needed to have ‘introduced the purchaser to the purchase’ and not merely to the property in order to claim a fee. What was interesting in the judgment was not the eventual decision, which seems only reasonable – an agent whose fee depends on a successful transaction should also have effected that transaction – but its wider ramifications.

Interpretation

The judges spent much time discussing the definition of ‘a purchaser’ and, secondly, the meaning of ‘a purchaser introduced by us’.

While the judgment is some seven pages long it is well worth reading for all agents who may use it decide to review their contractual provisions for their sole and multiple agencies.

The law on agency is relatively straightforward: where the remuneration of an agent is a fee due on a contract to be brought about, they are not entitled to such commission unless their services were the effective cause of the transaction being brought about.

This is largely sensible because it minimizes the chance sellers paying two commissions for the same transaction.

But, as always, the actual facts of any given case will ultimately decide whether or not an agent was the effective cause of a sale. The outcome of this particular case was, of course, determined by evidence and established case law.

What was surprising was that the straightforward clause ‘a purchaser introduced by us’ could be interpreted, quite logically, in two different ways:

• if the eventual purchaser of the property had been introduced by Foxtons then the agency was entitled to its commission;
• that the definition of purchaser implied that it had to be a purchaser as a result of the introduction.

Waste of time

Clearly, even the simplest of expressions can mean different things to different people and it is never a waste of time to review your standard conditions to try to ensure they are as clear as possible.

It is also important to remember that the courts are always on the side of what is fair and reasonable.

This means that your conditions have to be more than watertight if you are looking to object to what they think is fair and reasonable.

This case does not mean the end of multi-agencies, it simply highlights the importance of you reviewing your terms and conditions in both sole and multi agency, to ensure they mean what you intend.

Failure to do so could lead to you missing out on valuable commission at a time when you can least afford to.

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