Understanding Joint Mandates When Selling Your Property
A recent High Court case sheds light on two important things: what you're agreeing to when you sign an estate agent mandate, and how to figure out who gets the commission if more than one agent is involved. The case involved two agencies: RE/MAX and Kapstadt.
Anyone who's bought or sold a house knows the feeling: if an agent seems to have a serious buyer, you don't want to miss out. And if there's a question about who gets the commission, you might think you can sort it out later. Then "later" arrives...
This High Court case, decided just before the holidays, shows how easily these problems can pop up, how difficult and expensive they can be to fix, and how one of the agents involved in the sale will likely end up disappointed.
Michael and Alison Smith ("the Smiths") decided to sell their Camps Bay house ("the property") and signed a written joint mandate ("the mandate") with RE/MAX and Kapstadt on September 21, 2021, to market it. The mandate didn't specify a purchase price and was valid until 5 PM on April 30, 2022.
The mandate stated that if RE/MAX sold the property or if it was sold to anyone RE/MAX introduced during the mandate period, RE/MAX would get a 3.5% commission plus VAT on the sale price.
Two Failed Offers for the Property
During the mandate period, RE/MAX contacted one of their existing clients, James Pears ("Pears"), and invited him to view the property. They arranged several viewings for him, including ones where Pears brought his advisor and parents. Negotiations started, and Pears made an offer, but it was lower than the asking price. RE/MAX then told Pears that the Smiths had accepted another offer from an American buyer introduced by Kapstadt. Pears then returned to London, saying he wouldn't increase his offer.
The deal with the American buyer later fell through because he couldn't meet the terms of the sale.
The First Bidder Tries Again, Through the Other Agent
Around February 2023, the Smiths accepted a second offer from Pears. Mrs. Smith informed the RE/MAX agent via voicemail that an agent from Kapstadt had contacted her to arrange a viewing for a client, and that client was indeed Pears. Mrs. Smith confirmed to the RE/MAX agent that she had told the Kapstadt agent that RE/MAX had already introduced Pears to the property.
The Smiths were happy they had a buyer, and Pears was happy to get the property at a price he was willing to pay. But who should get the rather large commission of R966,000 (including VAT)?
Since RE/MAX believed they were the agency that introduced Pears to the property, they claimed the commission from the Smiths. Kapstadt's view was that the joint mandate had expired and that the property was no longer listed on the RE/MAX website or being marketed by them (though RE/MAX disputed this).
Which Agency Was the Real Reason for the Sale?
Interestingly, the Smiths were clearly concerned about who should get the commission. When they negotiated with Kapstadt, they insisted that Kapstadt promise to protect them from any commission claim by RE/MAX. This promise seems to have eased any worries the Smiths had about future claims from RE/MAX.
The main point of disagreement was which agency's actions were the effective and primary cause of the property sale.
The judge pointed out that many previous court decisions have confirmed that the key factor in deciding if an estate agent deserves commission is whether they were the effective cause of the sale and, importantly, whether that agent had a valid mandate at the time.
The court stated that if an agent with a proper mandate introduces a client to a property, and that client later buys it, then the agent is entitled to commission. This holds true, the courts have said, even if the sellers canceled the agent's mandate in the meantime. What matters is whether a valid mandate was in place when the introduction happened.
Past Failed Negotiations and an Expired Mandate Don't Change the Initial Introduction
So, the court had to determine whether RE/MAX introduced the buyer (Pears) to the property and whether RE/MAX had a valid mandate at that time.
Kapstadt argued that the property was eventually sold to Pears more than 90 days after the initial mandate period had ended. Therefore, they claimed a "direct financial and legal interest" in the commission, which the Smiths didn't dispute. However, Kapstadt had promised to protect the Smiths from any commission claim by RE/MAX. The High Court also noted that Kapstadt's argument that the negotiations between Pears and RE/MAX had broken down wasn't enough to dismiss RE/MAX's claim.
Given the established legal principles about the effective cause of a sale, the court's decision favored RE/MAX. They found that RE/MAX was the effective cause of the sale and that the commission had to be paid to them.
Should the Sellers Have Turned Down the Second Agent's Offer?
The judge suggested that, looking back, the Smiths should have insisted that Pears deal with RE/MAX rather than accepting the offer through Kapstadt, especially since they knew RE/MAX had been involved with Pears earlier.
While the judge's point is valid, and directing Pears back to RE/MAX would have avoided the legal battle, it's also understandable that the Smiths were worried about losing the sale. They had been trying to sell the property for a long time, and there hadn't been any other offers.
For them, the promise (indemnity) they got from Kapstadt probably seemed like the best way forward at the time.
What About Trying Mediation to Resolve the Issue?
This case clearly shows how important it is for mandates to be clear and unambiguous, especially with joint mandates. Sellers can protect themselves by having a lawyer check the wording of the mandate before signing and by possibly requesting a list of all potential buyers introduced by each agent.
Estate agents also need to be careful to document their efforts in introducing parties to a property. This documentation will be crucial in determining the effective cause of the sale later on. As the judgment showed, they need to prove that their efforts were the main reason for the sale and that a valid mandate was in place at the time.
It's worth noting that the judge felt this dispute would have been better resolved through alternative dispute resolution methods, like mediation. A skilled mediator with experience in property matters might have been able to help the parties find a cost-effective solution.