The cost of not complying with the Estate Agents Act

Those requirements are set out in sections 48A, 48B and 49A of the Estate Agents Act, and include the following:

• The agent must not retain any rebates, or seek from a client any amount that exceeds the anticipated outgoings.
• Before obtaining the client’s signature on the appointment, the agent must inform the client that the commission and any outgoings are subject to negotiation.
• The agent’s appointment must be in writing, and must contain:
• Details of the commission and outgoings agreed;
• If a fee is calculated on a percentage basis, a statement of that fee both as a percentage and in a dollar value (the price for this purpose is estimated from the reserve price or other amount on the engagement).
• A rebate statement in the prescribed form.
• A complaint statement in the prescribed form.
• The agent must give the client a copy of the signed appointment.
• The agent must retain copies of the documents required by the Act for the prescribed period.

A recent decision of the Victorian County Court underlines the importance to agents of scrupulously observing each detail of the requirements under the Act.

In Cross Country Realty & Anor v. Ubertas 350 William Street Pty Ltd [2015] VCC 2012, a decision handed down on 31 July 2015, the estate agent, who had already received over $3,000,000 in commission from the developer, sued the developer for a further $186,455 alleged to be owed. Unfortunately for the estate agent, the agent had not complied with the mandatory disclosure requirements stipulated in the Act, and therefore had to admit their omission in that regard. The consequence of this was that the estate agent not only had no basis to claim the $186,455, but was also ordered to repay the $3,000,000 to the developer. This could be described as a windfall for the developer, given that the developer had probably benefited greatly from the estate agent’s services regardless of whether it suffered any disadvantage because of the non-disclosure. However, the Act is unambiguous in its terms, and benefits which the developer (or any other client) might have received from the agent are irrelevant when considering the legal question of whether an agent is entitled to receive or retain a commission.

Given the huge sums often at stake in commission deals, agents must be careful to ensure strict compliance with the requirements of the Act and be able to prove that compliance if required. Proving when, where and how the client was informed that the commission and any outgoings were subject to negotiation is made much easier if this is done in writing – and prior to the client signing the authority. Proving complete compliance with the other requirements is made easier if separate records are kept of each step.

It is common for agents’ authorities to contain an “acknowledgement” by the client that the client has been informed of the fact that the commission and outgoings are subject to negotiation. But if the client does not or cannot read the authority prior to signing, this could destroy the agent’s right to commission. It is therefore recommended that the agent carry out this step separately.

It is also recommended that the client’s signature be obtained on an acknowledgement that the client has received a copy of the signed authority – and this must, logically, be a separate document from the authority itself.

For expert Real Estate Agent advice, please contact Samuel McMahon or a member of our Real Estate Law team.