Agents - Is your commission at risk?
29I07I09
Is your commission payment dependant on how the sale
proceeds?
It is a long established
principle that agents obtain commission from the seller upon
completion of a transaction. This is provided that the agents
were the effective cause of the transaction. This has been
brought into severe doubt following a High Court ruling in
Estafnous v London & Leeds Business Centres Ltd.
The agent (Estafnous)
entered into an agreement with the seller (London & Leeds
Business Centres) whereby he would receive £2m commission upon
introducing a buyer who then completes a successful sale. The
agent introduced London & Leeds to the buyer
(Kapoor). After some complications, Kapoor eventually
acquired the building through a deal to buy the parent company
London & Leeds. The agent maintained that this
entitled him to commission. The judge concluded that the
agent was not entitled to commission as the purchase was of the
parent company, and not a simple deal for the building.
There are many reasons
why the way in which a deal is structured may change.
Principally it is to save Stamp Duty Land Tax, and invariably
culminates in a far more complex contract than originally
anticipated. However this does not alter the original
perspective whereby the agent has introduced the seller to the
buyer!
It may well be that this
case will be appealed as it has some significant ramifications –
even if just a point of principle. Nonetheless, it would be
prudent for agents to review their standard terms and conditions to
ensure that commission entitlements are not impacted by the way a
deal is structured.
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