Selling a Property – Can the Agent claim commission if a Contract does not settle?

It is universally understood that if a selling agent locates a buyer to purchase a property and the contract settles, then the seller pays the agent a commission for the successful sale. However, there are also circumstances where a contract is terminated after it goes unconditional. When this occurs, it can be an unexpected surprise to the seller, to realise they may have to pay more commission than what was initially thought.

 

 

Where can a seller find out when the agent’s commission is payable?

A seller will sign a Property Occupations Form 6 (‘Form 6’) to appoint a real estate agent to advertise their property for sale. A Property Occupations Form 6 acts as a contract between the seller and agent and considers:

• how much of a commission the agent will receive from the sale;

• how long will the agent act for the seller;

• will the agent be the only real estate agency that can act as the seller’s agent; and

• any other special arrangements made by the agent and seller for the sale.

 

What happens is a Contract becomes unconditional but does not settle?

An unconditional contract refers to when all the buyer’s conditions (such as building and pest inspections and loan applications) have been satisfied. This signifies to both the buyer and seller that they are seriously proceeding with the Contract and settlement will occur. While it is rare, there are times where the buyer makes their contract unconditional and can no longer complete settlement.

The Contract of Sale is very clear on what happens to the buyer and seller in the circumstance that the contract is terminated after it becomes unconditional. However, the Contract of Sale does not make clear what happens between the agent and seller. This is understandable as the buyer and agent have no obligation to each other, so the buyer does not need to know when the agent’s commission is payable.

Therefore, the Form 6 may provide the answer. There is also a supporting document called an “REIQ Appointment of Real Estate Agent” Form with the Form 6. The REIQ Appointment of Real Estate Agent Form expressly states in standard condition 5 when commission is payable to the agent by the seller. If there is no REIQ Appointment of Real Estate Agent Form supplied with the Form 6, then the general stance is once the Contract becomes unconditional the agent is entitled to claim commission, regardless of if that contract settles or is terminated.

Regardless of whether an REIQ Appointment of Real Estate Agent Form is provided as part of the Form 6, it is very possible the seller may be required to pay 2 lots of commission to the seller. This will most likely occur if the first contract is terminated after it becomes unconditional and the second subsequent contract settles.

 

 

Can a seller prevent the agent from claiming 2 lots of commission?

The seller can prevent the agent from claiming 2 lots of commission, only if the agent agrees to that arrangement. The easiest and safest way to arrange this is when the seller is signing the Form 6. Under the Form 6, Part 7 Commission, the seller may insert a special condition that the agent’s commission is only payable if and when a contract of sale for the property settles. If an REIQ Appointment of Real Estate Agent Form has also been supplied to the seller, then the seller can cross out by hand the circumstances under which standard condition 5 may apply.

If a seller is looking at including these special conditions, then it is good practice to not just make the amendment, but to also notify the agent before the agent signs the agreement also. This gives the agent the opportunity to review and negotiate the terms before they sign and are bound to the agreement.

If a seller has already signed a Form 6, it may still be possible to amend the terms of the Form 6. The seller will need to approach the agent and advise them that they want to change the Form 6, Part 7 Commission section. This will require the Agent to agree to the change (which they are not obliged to agree to) and should also be formalised in writing.

 

 

At what stage should a seller obtain legal advice?

At its core, a Form 6 is a binding contract between the seller and agent. Once signed, both parties must comply with their obligations and failure to comply may result in legal proceedings. Therefore, a seller can approach a lawyer to review the terms of the Form 6. A lawyer can also assist the seller in preparing a special condition confirming when the commission is payable to the agent.

If you have any questions or require assistance with a sale in Queensland, then please contact the property team at NB Property Law for more information.

If you have any questions or require assistance with an Enduring Power of Attorney matters in Queensland, then please contact the property team at NB Property Law for more information