Payment of agent’s commission on cancellation of sale agreements

When Winston Churchill made his famous speech in 1940, which included an undertaking to “fight them on the beaches”, it was in the context of the bitterest conflict in world history.

Although a dispute relating to payment of agent’s commission in circumstances where there has been a breach and subsequent cancellation of a sale of property agreement cannot be equated with the Second World War, such disputes can create major issues in the lives of the parties concerned and often leads to, what feels like, all out war!

Most standard property practitioner offers to purchase / sale of property agreements, contain clauses to the effect that:

• commission is deemed to have been earned on the signature date or the date of fulfilment or waiver of suspensive conditions;  
• commission is payable on the date of registration of transfer of the property, or on cancellation of the agreement due to a breach by the seller or the purchaser, or alternatively, by mutual agreement;  
• the commission due may be deducted and paid from any amount held in trust by the conveyancer.

The effect of the above provisions would be that the property practitioner would be entitled to the full commission payable notwithstanding that the agreement has been cancelled and transfer has not been registered. In addition, depending on the amount of the deposit held in trust, the seller would, and often does, recover very little from the deposit once commission has been deducted.

There is no question that property practitioners play a vital role in the sale and purchase of properties, and are undoubtedly entitled to payment of agreed commission on fulfilment of their mandate. It is, however, questionable as to whether such commission should be payable in the event of cancellation of an agreement, either as a result of breach by one of the parties or by mutual agreement. Many would argue that a property practitioner who is the effective cause of a sale agreement being entered into, has not completely fulfilled their role, until such time as the property has been registered into the name of the purchaser and the seller has received payment of the purchase price.

There are perhaps compromises that should be negotiated with regard to property practitioners being entitled to a certain portion of their agreed compensation in the event of cancellation of an agreement but the prevailing position in terms of which the property practitioner receives payment of their full commission, often utilising the full deposit, which should have been provided as security for the seller, does not lead to an equitable outcome.

In order to avoid “battles on the breaches”, careful consideration should be given to these issues when negotiating and finalising a sale of property agreement, which would go a long way in avoiding the type of conflicts that Churchill warned of, and would result in a “Win, Win” situation.