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A real estate agency in Victoria has been ordered to repay a $3 million commission to a developer for failing to provide a rebate statement in compliance with section 49A(4) to the Developer, in contravention of sections 49A and 50 of the Estate Agents Act 1980 Act.

The real estate agents entered into a contract with the developers to sell apartments in its development at William St, Melbourne. A dispute arose in relation to unpaid commissions totaling $235,000 which the Estate Agents claimed they were owed by the Developer and the Estate Agents commenced proceedings against the Developer to recover the unpaid commissions.

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The developer sought a dismissal of the proceedings and brought a counter-claim, saying that because the real estate agents had failed to comply with sections 49 and 50 of the Act the real estate agency was not entitled to be paid any commissions.

The most important part of their argument was that section 50 of the Act expressly provides that an estate agent cannot retain any commissions paid to it unless the estate agent has complied with, amongst other obligations, sections 49A(1) and (2).

The Estate Agents admitted the alleged breaches of sections 49A(1) and (4) and sections 50(1)(b) and (4) of the Act.

high riseIn his judgement, Judge Lacava held that the Act is intended to have a strict operation, and given the structure of the legislation, harsh consequences may follow from a failure to comply with its terms. He also suggested that where the legislation is clear and unambiguous, that the court would not attempt to nullify a clear Act of Parliament.

The decision again sets a clear standard for real estate agents that they must comply strictly with legislation. The consequences of non-compliance are severe: they must pay back commissions received or not be entitled to claim their commission from the client.

In this instance the estate agents were required to repay the commissions even though they had carried out the work and the developer had had the benefit of that work. Had the estate agents complied with the Act, they would otherwise have been entitled to retain the commissions and receive the unpaid commissions.

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We encourage vendors to have any contract they enter into to be thoroughly checked by a property lawyer – even the ‘standard’ ones real estate agents provide. As this example highlights, a failure to meet legislative requirements may mean the agent is in breach of the law.

Our property lawyer and ‘real estate watchdog’ Tim O’Dwyer says: “Invariably the so-called ‘standard’ forms which agents will want you to sign are essentially agent-friendly documents loaded with cunning clauses that are not at all in your interests. Let us check out the agent’s paperwork, explain the implications of what your agents wants to bind you to, then let us cross out the offensive and obnoxious terms before adding our own seller-protective clauses.”

We offer a FREE, 10-minute phone consultation. Contact us today if you have questions about real estate law.