How often do real estate agencies get their hands on a commission from a deal that goes sour and how rarely does that turn out to be a motza?
Consider this real estate deal that crashed in 2020 but nevertheless reaped a $1.5 million commission for the agent concerned.
In January 2018, tourism group Sunshine Group Australia Pty Ltd appointed Cassowary Coast agency Andersons Real Estate for the sale of some 500 acres in Mission Beach.
The Form 6 appointment, provided that it was a “continuing appointment” commencing on for an “open listing” at a list price of $12 million at an agreed of 4.4% of the sale price.
Grahame Anderson was the agency’s sales manager and his wife its sole director.
The property had local authority approval for subdivision, an 18-hole golf course and resort accommodation.
Anderson was approached by Victor Soh who said he had “international buyers” who would be interested in the property.
In May 2019, Soh, Anderson and Sunshine entered into a deed agreeing to a success fee of $500,000 plus GST being payable on the settlement of a sale at $6.5 million plus GST.
Although the deed referred to a form 6 being attached, no form 6 was attached to the signed agreement.
A form 6 was prepared later that month for a “single appointment” for an exclusive agency expiring at the end of July and thereafter continuing as an open listing.
It provided for 4.4% commission for a sale price up to and including $6.3 million plus GST and if the sale price exceeded that sum, the agency was to be paid the entire excess plus GST.
The form 6 appointment included the standard condition that commission was payable even if the sale contract was terminated.
A contract was signed up with the Mayfair 101 group in August 2019 at $7.5 million with settlement 90 days after satisfaction of due diligence.
In May 2020 the buyer’s solicitor requested a rescission so a new contract could be entered into on the same terms with a related entity as buyer.
Although that contract envisaged an immediate settlement, that did not occur and Mayfair’s $750,000 deposit in the agency’s trust account was claimed by the seller.
Anderson Real Estate claimed the full $1.65 million on account of commission worked out as per the May 2019 appointment and when Sunshine refused to pay, filed a lawsuit in the Supreme Court in Brisbane.
Sunshine counterclaimed to recover the deposit in its trust account alleging – among other things – that the commission was not payable because the sale occurred after the term of the exclusive agency had expired.
Chief Justice Helen Bowskill ruled otherwise, concluding the sale had occurred within the period envisaged by the May 2019 form 6 because it was signed up during the open listing that followed after the exclusive agency term.
She also ruled that the failure to state in the appointment that commission would be calculated by reference to the “actual” sale price was immaterial.
The appointment complied – she ruled – with the relevant sections of the Property Occupations Act because it was clear that it would only be payable by reference to the price for which the property was agreed to be sold, not the advertised or listed price.
That conclusion was upheld on appeal.
“There was no error in the primary judge’s conclusion that the omission of the word ‘actual’ before ‘sale price’ rendered the form 6 to be of no legal effect,” held Justice David Boddice with whom Justices Burn and Ryan concurred. “The words ‘sale price’ in the form 6 [refer] to the price for which the property was agreed to be sold, which, for the purposes of the section, is the actual sale price”.
The appeal judges also upheld the chief justice’s finding that the agency had been the effective cause of the sale – rather than Anderson personally because it had been the party appointed under the relevant form 6.
Sunshine also contended the May 2019 form 6 should be read as part of a wider transaction that involved the deed entered into a few weeks earlier that envisaged commission would be payable only in the event a sale proceeded to settlement.
The trial judge and the appeal judges rejected that argument.
In their views, the May 2019 form 6 appointment was to be read alone, thus entitling the agent to commission even if the sale didn’t settle and to the lavish commission that had been agreed.
“The factual circumstances did not support a conclusion that the plain terms of the subsequent Form 6, as to payment of commission on a specified basis and in specified circumstances, including in the event of commission being payable even though the relevant sale did not proceed to settlement, was to be read down,” ruled the appeal judges.
Not only does Andersons get to keep the $750,000 deposit but Sunshine must pay it a further $900,000 plus its legal costs of the trial and appeal!