An agency appointed for the exclusive marketing of a suburban high-rise into its predominantly Chinese clientele has received an average 14% commission on the sales.

The May 2012 terms allowed the developer to compel Property Investors Alliance to buy all 16 one-bedroom units within 30 days of registration of the community title plan at a total base price of $7.2 million.

PIA was entitled to introduce buyers for the units under construction in Ryde (Sydney) at higher prices and to keep the excess.

The base price was negotiated so as to yield the agent an anticipated 5% or so on each sale.

The arrangement was crafted as an exclusive agency coupled with put options in favour of developer, an arrangement which doesn’t attract stamp duty in the way a put and call option, under NSW law, does.

As well as locating a suitable property for them, PIA’s service to clients included finance assistance, a three year rent guarantee, a pre-completion inspection service, and ensuring defect rectification.

In November 2013 it entered into an almost identical agreement to market a further 51 units in the project – including 40 two bedders – under which PIA was obliged to return to the developer $31.4 million.

That arrangement was long in the making, with PIA’s Justin Wang initially reluctant. Sales had been slow. Wang had only been unable to move a single one bedroom model in the two years up to April 2014. He and developer Diaa Gabra were both unsure as to an appropriate “base price” for the two-bedroom version, settling at just above $600k for most.

In late 2013 Wang also secured an exclusive agency to sell the entire stock of another development in the same street, almost directly opposite. The “hot” market for the sale of units in that building – The Row – suggested Wang would be able to “ask more for [Mr Gabra’s] units than he had anticipated”.

Wang sold out all but three of Gabra’s apartments under the November 2013 arrangement at about $60,000 above the developer’s base price and at least $100,000 above, for those in the first deal.

Gabra was stunned when he began receiving sales advices from PIA in March 2014. He called on Wang to adjust the base prices upwards which Wang refused to do.

The developer refused to settle on 3 of the sales whose initial buyers had rescinded but for whom Wang had introduced a replacement purchaser.

He contended that PIA as licensed real estate agent, had not complied with the relevant NSW regulations relating to its appointment and had failed to “act in the interest of his client [the developer] at all times”.

Justice Michael Ball in the NSW Supreme Court agreed that he was acting as agent for the developer but declined to intervene because the agreement was “negotiated between sophisticated and knowledgeable parties reflecting a commercial relationship in which all the risks and benefits of the sale to a third party were placed on PIA”.

“It would be unjust if PIA were entitled to obtain the benefits due to it under the contract,” he ruled.

Neither was PIA guilty of any breach of fiduciary duty or misleading conduct.

The court ordered the developer to pay over the $5.51 million together with additional surpluses due under the 3 contracts that he had refused to complete, namely $431k – making up a total payment of $5.5 million and an average “commission” rate of 14% – together with interest and legal costs.

Ryde Developments Pty Ltd v The Property Investors Alliance Pty Ltd (No 4) [2017] NSWSC 436 Ball J 21 April 2017 Read here

This decision was overturned in part on appeal. PIA’s failure to strictly comply with the relevant NSW regulations relating to its appointment by including in it a sales inspection report, was held by the appeal court to be a “minor failure” within the within the regulations (s 55A), entitling PIA to relief. As the developer had suffered no loss in relation to the second agreement by reason of that failure and had expressly waived reliance on the minor failures, it would be unjust to deny PIA the commission due under that agreement.

Ryde Developments Pty Ltd v The Property Investors Alliance Pty Ltd [2017] NSWCA 339 Beazley P, Payne JA and Barrett AJA, 21 December 2017 Read here


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