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Court of Appeal ruling on 'sole agency' estate agency contracts

81/08    11 July 2008

The OFT is drawing consumers' attention to a recent Court of Appeal ruling that affects 'sole agency' contracts with estate agents.

The recent court case ruled that estate agents cannot claim their commission under a 'sole agency' agreement unless they can show that they have introduced the buyer to the purchase, and not just to the property.

In the case of Foxtons v Bicknell in April this year, the Court of Appeal decided that Foxtons was not entitled to a £20,000 fee after a buyer it had originally introduced to a property but who decided not to purchase the property at the time, then went on to buy the property at a later date through another agent.

The court decided that 'introduced' meant introducing a buyer to the 'purchase' and not just to the 'property'. In this particular case, the buyer had made it clear to Foxtons that she was not interested at that time in buying the property and therefore Foxtons could not claim their fee.

Mike Haley, OFT Head of Consumer Protection, said:

'It remains the case that sellers who sign a 'sole agency' agreement with an estate agent could be liable to pay the agent their fee even if another estate agent ends up selling the property. This Court of Appeal decision helps house sellers and estate agents understand more about the circumstances where this might or might not be the case.'

NOTES

1. For more details see the Estate Agents Act section of this website.

2. If an estate agent uses the term 'sole agency' in his agreement, then he must use the statutory explanation of 'sole agency' set out in the Schedule to the Estate Agents (Provision of Information) Regulations 1991. The only exception to this requirement would be if the use of the statutory explanation would be misleading because of other provisions of the agreement.

3. The statutory explanation of 'sole agency' does permit an estate agent to claim his fee if the property is sold by another estate agent but to a person 'introduced' by the first agent during his sole agency period. However, the Court of Appeal's ruling has now made it clear that 'introduced' means to the purchase and not just to the property. According to the Court of Appeal 'in order to be entitled to a commission under the Terms for having introduced a purchaser, Foxtons have to show that they introduced the person concerned as the (eventual) purchaser, or…that they introduced the purchaser to the purchase and not merely to the property.'

4. The OFT does not have any authority to intervene in individual disputes between agents and consumers, as action taken by the Office is taken in the public interest for consumers at large.

5. From 1 October 2008, all estate agents will be required to join an approved estate agents redress scheme under the Consumer Estate Agents and Redress Act 2007 (CEARA). Buyers and sellers of residential property will be able to refer complaints concerning members of the scheme to an ombudsman to be determined. The ombudsman's decision is binding on the estate agent, although a complainant can choose to reject the decision and pursue their complaint through the courts.

6. Consumers should note that surveys, renting/property management, overseas property transactions, contractual disputes over fees, quality of service matters and valuations are not covered by the Act.

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