Sooner rather than later, please!
Marketing your property for sale – when does a selling agent's commission become due? Not many sellers think of their conveyancer when considering a selling agent's terms of business as part of their initial instruction on who best to market the property.
Whether or not it is because a seller doesn't want to incur "additional" legal fees or "jump the gun" by involving their legal advisors before a deal is secured is unclear but what can be equally ambiguous to an inexperienced seller are the potential circumstances in which a selling agent's commission can become due. If unsure and particularly if your proposed transaction is in any way involved with complex marketing terms and/or commercial conditions (specifically overage provisions), our message must be that it would be wise to ask your legal advisor to cast their eye over any proposed terms. This could save you any nasty surprises in the form of an unexpected and expensive liability for a selling agent's commission.
The recent case of Savills (UK) Ltd v Blacker and Sidemanor Ltd  highlights why it may be useful to instruct your legal advisor when negotiating a selling agent's terms before your property is marketed for sale (or letting). In this case, the Court of Appeal considered whether the Seller of an Estate of about 150 Acres near Ascot was liable to pay commission to Savills (UK) Ltd at the agreed joint agent fee of 1.75% of the purchase price of £6.88m (£120,400.00 plus VAT) even though:
- the contract between the Seller and Savills did not expressly identify the Seller as the client;
- the Estate was not sold in accordance with Savills' marketing strategy as set out in the contract; and
- Savills did not introduce the Buyer.
Savills had prepared a marketing strategy report for the Seller exploring ways in which the value of the Estate could be optimised and advised that this could best be achieved by obtaining planning permission to develop the 18-hole golf course with club house into a large mansion house with associated parkland for marketing to high-end international buyers at a price in the region of £15m. Savills standard terms of business were annexed to the report and together these documents were considered by the Court to record the contract. The report recorded the original intention between the parties that the Estate would be marketed once planning permission had been granted. The dispute arose when the Seller changed its mind and wanted to market the Estate with Knight Frank and Savills prior to the grant of planning permission (on the basis that this would be quicker as the Seller had financial commitments to meet). The marketing report was not updated accurately to record the revised terms. The Seller subsequently accepted an offer and completed the sale of the Estate to a buyer that had not been introduced by either of the selling agents.
Notwithstanding express wording in the contract relating to the interaction being Savills' marketing strategy report and Savills' terms of business which on a literal interpretation would appear to record otherwise, the Court of Appeal held that the stated commission was properly due to Savills.
The decision usefully highlights the import of ensuring that contracts are properly considered and agreements are recorded in full, complete and accurate terms before the marketing of a property is commenced despite a natural compulsion to put a property on the market immediately upon making the decision to sell and in spite of any commercial pressures which would appear to dictate a quick sale at all costs.
— Forsters LLP (@ForstersLLP) March 6, 2017