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Deal Structure Scuppers Agent’s Commission

Following a recent decision of the High Court all Estate Agents, Commercial Property Agents and Land Agents should ensure that their terms and conditions and/or engagement agreements are precisely worded to ensure the payment of the Agent’s commission is not affected by how the deal is structured.

In Estafnous v London & Leeds Business Centres Limited a straightforward property sale was restructured into the sale of shares in the company which was the ultimate owner of the property. The original agreement of the agent was with the company which held the property and which itself was a subsidiary of a parent company. The buyer who originally considered purchasing the property from the owner company later (for tax efficiency reasons) purchased shares in the parent company making it the owner of the company and in turn entitled through corporate ownership to the property.

The property holding company with whom the agent contracted refused to pay the commission on the basis that the property had not been sold but merely the shares in its parent had (indeed the company had not itself received the proceeds). The agent’s agreement set out precisely that commission was payable on the sale of the property but failed to acknowledge that the transaction of purchasing the legal estate in land is wholly different to purchasing the shares in a land owning company. This factor, held the court, caused the agent’s claim for the commission to fail.

Whilst the manner in which the corporate structure attached to the selling company was reorganised during the sale process added further complexities to the matter causing it to be somewhat removed from typical Agent’s agreements it serves to highlight the need for clear and precise terms of engagement.

In order to ensure commission is payable in all circumstances where the agent has introduced the buyer to the seller, any contract should use clear words to make a company liable for paying commission on a sale of the property itself, of the company itself or of the company’s parent.

Pearson Hinchliffe Commercial Law can provide specialist advice in matters relating to the contents of this article.

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