1300 660 884Following COVID-19, the housing market in Queensland has boomed. If you are a real estate agent, you may be […]
January 18, 2025
Following COVID-19, the housing market in Queensland has boomed. If you are a real estate agent, you may be […]
Following COVID-19, the housing market in Queensland has boomed.
If you are a real estate agent, you may be competing for the sale of the same properties, particularly where you have entered into a non-exclusive agency, or the exclusivity period has expired, and your appointment is “open”.
In this article, we explain the key legal principles relating to when a real estate agent is lawfully entitled to commission.
The legal principles
The starting point is the Agency Agreement.
If the exclusivity period has expired or it is a non-exclusive appointment, the agent’s appointment is likely “open.” Section 20 of the Property Occupations Act 2014 (Qld) (POA) will apply.
Section 20 of the POA states, relevantly: the appointed selling agent is entitled to remuneration only if he or she is the effective cause of sale.
Effective Cause Test
The term ‘effective cause of sale’ is not defined in the POA.
The common law generally provides for a real estate agent to be entitled to commission, it is for the agent to establish the necessary causal relationship between the agent's actions and the sale. This is the ‘effective cause test’.
In LJ Hooker Ltd v W J Adams Estates Pty Ltd (1977) 138 CLR 52, the Court observed:
"Effective cause means more than simply ‘cause’. The inquiry is whether the actions of the agent really brought about the relationship of buyer and seller, and it is seldom conclusive that there were other events that could each be described as a cause of the ensuing sale.”
In Moneywood Pty Ltd v Salamon Nominees Pty Ltd (2001) 202 CLR 351 Gummow J observed that:
“The notion of “effective cause” reflects the requirement expressed in a long line of cases that it is not enough that the engagement of the agent to find a purchaser or to introduce a purchaser was a step without the taking of which the sale would not have been effected. Something more immediate is required if the criterion of contractual liability is to be satisfied.” [Emphasis added]
So, on a practical level, the ‘effective cause test’ depends on a number of factors:
The burden of proof lies with the agent seeking to recover the sales commission. The agent must convince the Court that it was their ongoing efforts that influenced the buyer’s decision to purchase the property. Generally, standard Real Estate Institute of Queensland (REIQ) contracts will include a term that entitles the agent to commission where an exclusive agency ends and the client sells the property to a buyer introduced by the agent. However, introduction alone might not satisfy the effective cause test. This is made explicit in the decision of Emmons Mount Gambier Pty Ltd v Specialist Solicitors Network Pty Ltd [2005] NSWCA 117 (“Emmons”). In the case of Emmons, between June and August 1996, the first agent introduced a potential buyer for a hotel, provided trading figures and information concerning occupancy rates and secured an offer to purchase the hotel for $25Mil. However, the vendors sought a price of $30 million and after attempting to bridge the gap the agent ceased his efforts to bring about a sale. Between 2 September 1996 and 3 October 1996, a second agent brokered a purchase by the potential buyer for $29.7Mil. The Court held that the first agent had not proven that his efforts were an effective cause of the sale. In arriving at that conclusion, the Court noted, relevantly:
…It is simply insufficient to rely on the introduction alone and the verbal offer of $25 million. Given the impediment of price it was [the second agent] and not [the first agent] who bridged the gap. To my mind, it cannot be inferred from the evidence that Mr Wheeler’s efforts flowed through to [the purchaser], when he made the ultimate offer of $29.7 million which was accepted by the vendor. It cannot be inferred that [the first agent’s] efforts continued to influence Mr Wan to buy the property. To use the words of Brereton J in Baker v Leonard Oades Pty Ltd [1964-5] NSWR 1745, the yeast of [the first agent] was no longer working.
Similarly, in a New South Wales Court of Appeal decision, Outerbridge trading as Century 21 Plateau Lifestyle Real Estate v Hall [2020] NSWCA 205 ("Century 21 v Hall"), the Court held that where an agent plays a significant causal role in a buyer purchasing a property, it may not be the effective cause of the sale. Being the effective cause of sale required more than a mere introduction of the eventual buyer of the property, and the agent who effectively introduced the buyer to the property must play a role in the negotiations to conclude the sale. In Century 21 v Hall, the agent that effected the sale (Unique Estates) played a crucial role in the sale, in that they “resuscitated” the transaction after the buyer believed the initial engagement and negotiations through Century 21 was at an end. Despite the work of Century 21 in introducing the buyer to the property, the Court decided that it was Unique Estates that subsequently secured the sale that would otherwise not have occurred.
Practical Takeaways: Consider your agency agreement
Each case will be decided on its unique facts and circumstances. If the agent responsible for the eventual sale of the property did not play a role that is more significant than the first agent, both agents may be entitled to sales commission – e.g. the terms negotiated by both agents were similar and did not substantially differ.
If you are a real estate agent or developer, consider the circumstances in which an "effective introduction" has been made. Consider whether the terms of your agency agreement are sufficiently clear to reduce the risk of a serious dispute arising in similar circumstances.
For a real estate agent seeking to avoid loss in similar circumstances, consider including express provisions in your agency agreement that make commission payable:
If you are a real estate agent and you are not sure whether you are entitled to sales commission for a property for which you have an open listing and the sale was effected by another agent, you should obtain legal advice before engaging in litigation.
Winterkorn Legal Group regularly acts for real estate agents and property developers.
Contact our experienced commercial litigation and dispute resolution team at Winterkorn Legal Group today for a confidential 30-minute free consultation.