THE ESTATE AGENT BEING THE EFFECTIVE CAUSE OF THE SALE AND ENTITLED TO COMMISSION

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Introduction

Whether an estate agent is entitled to estate agents commission will be answered by referring to the agreement (commission agreement) between the principal and the estate agent.  The terms and conditions referring to estate agents commission can be stipulated in the initial mandate which specifies the services that have to be rendered by the estate agent prior to him being entitled to commission and under what circumstances his right to such commission and payment thereof falls away, for example that commission is only payable once the property has been transferred into the name of the purchaser and the seller has received the net proceeds of the sale.

In accordance with the common law an estate agent is entitled to demand payment of commission from his principal provided :

  • The estate agent had a mandate to conclude the transaction on behalf of his principal
  • The estate agent has duly complied with all terms and conditions contained in the mandate
  • The estate agent was the effective cause of the transaction

A mandate to find a purchaser

The mere fact that the owner indicated to the estate agent that he wanted to sell his property and provided certain general information regarding the property to the estate agent does not constitute a mandate to the estate agent to sell the property.  Although a mandate can be provided orally to an estate agent the clear presence of such a mandate by the seller to the estate agent whether orally or in writing is required and will have to be proven by an estate agent requiring the payment of commission (Michael vs Vermeulen and others 1971 (1) SA 442).

If an estate agent claims commission based on an implied mandate it has been found by the Court that it should be clear, based on the evidence before it that there was consensus between the seller and the agent as to the terms and conditions of such a mandate (Bosch vs Flowerbox (Pty) Ltd 1971 (4) SA 640).

The estate agent should further be vigilant as to the boundaries of the mandate and should not transgress such boundaries in exercising the mandate.  A mandate provided by the seller to the estate agent does for example not entitle the estate agent to conclude a contract, substitute parties or receive any monies on behalf of the seller (Bird vs Summerville and others 1961 (3) SA 194).

Due Performance in terms of his mandate

In order to prevent any ambiguity or disputes the terms and conditions of the mandate has to be very clear and should indicate the services required by the seller from the estate agent and which functions the estate agent has to fulfil to entitle him to the agreed upon estate agents commission.

It is further important to remember that the mandate is an agreement between the seller and the estate agent and not any other prospective parties.  In the case of Phillips vs Aida Real Estate (Pty) Ltd 1975 (3) SA 198 it was established that an estate agent is not entitled to damages in the event where the offeror withdraws from an offer prior to the acceptance of such an offer by the seller, as it was never the intention of the offeror to contract with the estate agent and no contractual relationship existed between the offeror and the estate agent entitling him to such damages.

In the event of the absence of a clear mandate and the reliance of the estate agent on an implied mandate the following has to be present and proven by the estate agent :

  • Introduction of the Purchaser to the seller and the property, by the estate agent

A proper first introduction of the property and the seller has to be done by the estate agent resulting in the conclusion that if it had not been for such an introduction by the estate agent the purchaser would not have known of the availability of the property or the seller’s willingness to sell.  To merely inform a prospective buyer that you as estate agent have a mandate to sell a property is no proper introduction (D.C Wylde & Co vs Sparg 1977 (2) SA 75).

  • The purchaser was at signature of the agreement willing and able to purchase

It has been found that the clear absence of a purchaser being willing and able to purchase during contracting resulted in a claim for estate agents commission being refused (Beckwith vs Foundation Investments Co 1961 (4) SA 510 (A)).

  • A valid agreement of sale was concluded

In the event of an estate agent merely identifying a purchaser it has been found not to be sufficient to claim estate agents commission and a valid agreement should at least have been concluded between such purchaser and the seller before the estate agent will be able to claim such commission (Brayshaw vs Schoeman 1960 (1) SA 625 (A)).

  • That the introduction was the effective cause of the contract

The only way in which an agent can succeed in proving that the finding and introduction of the purchaser was the effective cause of the sale is by evidence that the purchaser was willing and able to buy on the seller’s conditions and that the sale was bound to have gone through independently of any negotiations conducted by another agent (Eschini vs Jones 1929 CPD 18).

Should an estate agent however introduce a purchaser to a seller and the purchaser chooses to negotiate further directly with the seller and obtain the property for a lesser price the estate agent has still been deemed to be the effective cause (Doyle vs Gibbon 1919 TPD 220).

Where other factors have intervened causing the transaction to proceed and the initial introduction alone was not the effective cause a claim for estate agents commission has been denied or refused (Basil Elk Estates (Pty) Ltd vs Curzon 1990 (2) SA 1).

It is further a requirement that the introduction of the estate agent has to be the cause of the transaction and without  such an introduction the transaction would not have taken place (Wakefields Real Estate (Pty) Ltd vs Attree and others Case number 666/10 Court of Appeal)  it is also important to take factors into account for example the intervention by ‘n third party in order to remove obstacles and the timespan between actions taken by different parties (Wynland Properties vs Potgieter and others 1999 (4) SA 1265).

It is also important to take all factors into account in determining whether an estate agent was the effective cause of the sale or not, as it has been determined in the past that an estate agent was the effective cause of the sale even though the purchaser was not introduced to the property by the estate agent (Knight Frank SA Limited vs Nach Investments (Pty) Ltd 1999 (3) SA 891 (W)).

The latest and most noteworthy judgement regarding an estate agent being the effective cause was handed down by the Supreme Court of Appeal on the 28th of September 2011 after the matter was initially heard by the Kwazulu Natal High Court and it’s judgement, delivered on the 10th of February 2010, overturned on appeal and of which the facts were as follows :

Wakefields Real Estate represented by Mrs Walker held a show day which was attended by Mrs & Mrs Howard looking for a bigger property.  Although the Howards wanted to remain in Morningside where they then resided Mrs Walker told them of a property in Monteith Place.  The Howards were very interested in the property and by way of the facilitation of Mrs Walker visited the property twice.

After the aforementioned visits Mrs Walker phoned Mrs Howard to enquire whether she would like to make an offer towards the property in Monteith Place in reply to which Mrs Howard informed Mrs Walker that the property was too expensive and that they had to invest in the expansion of her husband’s ENGEN garage and did not have the funds, and that they were going to abandon the idea of buying a bigger property and would rather extend their existing home to satisfy their current needs.

Shortly thereafter the Howards met an estate agent Mrs De Marigny employed by Pam Golding Properties and the Howards informed her that they recently viewed a property in Monteith Place by means of another estate agent but that the property was too expensive.

Mrs De Marigny was subsequently informed by the owners Mr & Mrs Attree that they have reduced the asking price of the property substantially upon which Mrs De Marigny informed the Howards accordingly and again took them to revisit the property after which a contract was concluded between the Attree’s and the Howards.

The High Court in the matter a Quo relied on the case of Basil Elk Estates (Pty) vs Curzon in concluding that the first introduction by the Wakefields estate agent had been outweighed by intervening factors.  Various personal factors had stopped the prospective purchaser in that case from concluding a sale and the Court held that similarly in this case the intervening factors were such as to make the initial introduction relatively unimportant, and thus rendering the actions of Wakefields not to be the effective cause of the sale but those of Pam Golding to be the effective cause.   It is therefore that the High Court dismissed Wakefields claim for estate agents commission.

This judgement however was overturned by the Court of Appeal as they have found that had Mrs Walker of Wakefields not shown the Howards the house first the house would not have been sold through the agency of Pam Golding.  The Howards according to the Court of Appeal “absolutely loved the house” and Mrs Howard persuaded her husband to view the property with her.  He too liked it but was concerned about finances and was it not for the initial introduction Mrs De Marigny of Pam Golding would not have known that the Howards were interested in the property nor would she have found a willing and able purchaser before the show day and thus she had reaped where she had not sown, the Court of Appeal therefore stated that Mrs Walker’s initial introduction was the effective cause of the sale despite Mrs De Marigny’s intervention and granted Wakefield Real Estates appeal with costs forcing the Attree’s and Howards to pay the commission claimed.

Out of the aforementioned it is clear that effective cause has no certain characteristics but can be influenced by a multitude of factors.  What is however certain is that these factors in determining the effective cause have to be the ultimate reason why the transaction was concluded. 

HOW TO SECURE YOUR COMMISSION IN YOUR CAPACITY AS PRINCIPAL

In the latest case of Erasmus and Others vs Verna Van Den Blink Properties CC a close corporation estate agency successfully carried out its mandate to find a tenant for a landlord.

The sole member Verna van den Blink had a Fidelity Fund Certificate issued by the Estate Agency Affairs Board in her personal capacity and name, which stated that it was issued to her in her capacity as Principal (sole Proprietor at firm) of the close corporation, with the close corporation’s name also specified

The agency issued summons against the landlord who refused to pay the estate agents commission, holding that the Fidelity Fund Certificate had clearly been issued to the member herself and not to her close corporation and that it disentitled the close corporation to its commission in terms of Section 34A of the Estate Agents Act 112 of 1976.  The Court agreed with the defendant’s argument and denied the claim of the close corporation/agency.

In an equally recent case of Ustica 1153 CC trading as Cape Region Home Sales vs Jordaan the close corporation with a valid Fidelity Fund Certificate had fulfilled its mandate to find a buyer for the property, but did so not in the close corporation’s name but in its trading name.  in this instance the Court found that this close corporation and the trading as entity was evidently one and the same and awarded the claim for estate agents commission. 

Conclusion

It is clear from the aforementioned that the judgments are in many ways dependent upon the specific judge presiding and whether he has a sympathetic approach towards the estate agency or not.  Although it is still permissible in terms of the new Companies Act 71 of 2008 as well as the Close Corporations Act 69 of 1984, to practice under a trading as name, it is important to ensure that all documents, letterheads, websites, offers to purchase and Fidelity Fund Certificates bare the legal entity’s name as well as the trading as reference.

DELIBERATE MISREPRESENTATION AND THE VALIDITY OF THE AGREEMENT

One of the basic requirements of a valid agreement is mutual consent between the parties and should the consent be obtained based on a misrepresentation it will most likely affect the validity of the agreement which may result in the agreement either being null and void or subject to cancellation by the party who had been misled.

On the 3rd of August 2011 judgement was handed down in the case between Auction Alliance (Pty) Ltd vs Netluk Boerdery CC and others by Judge LP Halgryn in the South Gauteng High Court Johannesburg and the facts in short were as follows :

Immovable property belonging to Hartenbos Landgoed (Pty) Ltd (in liquidation) situated in Hartenbos had been advertised by Auction Alliance for sale in the Sunday Times and flyers / auction papers have been printed advertising the auction which would take place with the following wording respectively : 

“71 completed houses and 62 stands, Southern Cape… Hartenbos Landgoed (Pty) Ltd (in liquidation) (Master reference : C1172/2009).  Hartenbos Landgoed is one of the largest security resorts in the Garden Route coastline.  Improvements : 71 luxury units (2 and 3 beds) with full services and “ready to go”.  Stands : 62 serviced stands.”

“Hartenbos Landgoed is one of the largest security resorts on the Garden Route, situated between two river mouths at the Little Brak and Hartenbos Rivers.  Just 10 minutes’ drive from Mossel Bay along the N2 highway.  The estate includes internal roads, landscaping, boundary walls, security access and facilities.  Improvements: 71 completed luxury units (2 and 3 beds) with full services and “ready to go”.  Stands : 62 services stands”

The auction subsequently took place at the Southern Sun Hotel in Sandton during which the property was sold to the highest bidder being Netluk Boerdery CC R50 000 000-00 (Fifty million rand) and a deposit of R2 000 000-00 (two million rand) was paid on that day to the Auction House.

During informal discussions between the auctioneer and the buyer the buyer pertinently asked the auctioneer whether the property he was about to buy corresponds with the information as set out in the auction advertisements on which the auctioneer positively confirmed it to be so.  The buyer further confirmed that he was on his way the following day to inspect his newly acquired property in Hartenbos.  On his arrival at the property he came to realise the following  :

  • 20 of the 71 units were not completed and in some instance needed major building works in order to complete these units;
  • The property was not surrounded by boundary walls at all;
  • The property was not part of a “security resort”;
  • The 62 vacant stands had no services at all;
  • An environmental contribution equal to 1% of the purchase price of each of the units sold had to be paid to an environmental trust and the fees for the Record of Decision (ROD) have also not been paid;
  • None of the units were as stated “ready to go”.

Auction Alliance on the other hand relied on the clauses contained in the conditions of sale which were signed by the buyer being :

  • The buyer acknowledged that he had read and understood all the terms and conditions of sale and were bound to them;
  • The commission (now claimed by Auction Alliance) was deemed to have been earned and was payable immediately on the fall of the hammer or signature of the conditions of sale, which ever occurred first;
  • The property was sold voetstoots;
  • Auction Alliance did not furnish any warranties or undertakings relating to the property.

By means of evidence presented to the Court by Mrs Pretorius on behalf of the buyer the following were disclosed:

  • Mrs Pretorius is an estate agent in the Hartenbos area and she had been involved with the marketing and sales in Hartenbos Landgoed since 2004;
  • On 20 September 2010 she made certain suggestions regarding the sale of the units to the Liquidators of Hartenbos Landgoed (Pty) Ltd (in liquidation);
  • The proposal stated that certain units were still incomplete and a lot of construction still had to be done.  She provided the Liquidators with details, photographs and quotes;
  • She conveyed this information to the mortgage holders of the property (Investec) personally as well as to Auction Alliance who visited the estate in person “to take photos” for their publication and advertisement;
  • In November 2010 and advertisement from Auction Alliance appeared in The Burger news paper and during the visit by Auction Alliance to the premises Mrs Pretorius stated to Auction Alliance  that the information contained therein was incorrect as there were only 71 units and not 122 as advertised and that they were not “ready to go” as there were some of them that were incomplete.  There were no boundary walls and the development was not a “security estate”;
  • On receipt of the aforementioned information the representative of Auction Alliance, in the presence of Mrs Pretorius phoned his superior in Cape Town to confirm the incorrectness of the content of the advertisement.

Irrespective of the aforementioned notification and based on more or less the same incorrect information in the advertisements and auction papers later published, Auction Alliance proceeded with the sale herein contested.

 In order for Netluk Boerdery CC to successfully cancel the agreement and to establish fraud on the part of Auction Alliance it had to proof the following :

  • A representation was made to them regarding the property to be purchased;
  • The content of such presentation made;
  • That the representation was untrue;
  • That Auction Alliance knew that the representation was untrue;
  • That Auction Alliance intended the representation to be acted upon by Netluk Boerdery CC;
  • That Netluk Boerdery CC was in fact induced to act upon the representation.

All of which the Court decided, Netluk Boerdery CC could sufficiently prove and have further stated that dishonesty is the most tenacious ground for review and it survives the strictest ousters of the Court’s Jurisdiction and that fraud unravels everything.

In the light of the aforementioned it is clear that if fraud can be proven no defence of the fraudster reliant upon contractual waivers or indemnification will suffice and keep the contract “alive”.

THE NATURE OF AN OPTION AND HOW IT NEEDS TO BE EXERCISED

Many purchasers choose to rent immovable properties with an option to purchase the property during the rental period which option is an unconditional and irreversible right that is given to that person to buy the property within a certain time and at a predetermined purchase price.

The option is exercised in writing by the purchaser by simply advising the seller that he is exercising the option as provided and in doing so the sale is concluded.  The seller may not refuse the then concluded agreement :

Mostert vs Van der Westhuizen and Another

In the aforementioned instanced Mr Mostert leased certain land to a company in terms of the lease the company was granted an option to buy the property during the duration of the lease at an agreed sum subject to an annual escalation .

On a certain day during the existence of the lease, the company’s attorney sent a letter to Mr Mostert indicating that his client has decided to exercise the option and attached a draft deed of sale to the aforementioned letter. 

Several months passed thereafter and the company received no feedback from Mr Mostert.  After the lease expired Mr Mostert demanded that the premises be vacated as the lease had expired.  The company refused to vacate the property on the grounds that it had exercised its option in terms of the lease.

Mr Mostert sued the company for eviction from the premises and the company defended the claim on the basis that it was entitled to the property by way of exercising its option and proceed with the transfer in terms of its draft deed of sale.

Mr Mostert raised a point in law in that the option was not properly exercised as the deed of sale sent to him contained a clause stating that the agreement would be subject to the company obtaining a bond from a financial institution first.  In other words, the option was not properly exercised because the proposed deed of sale contained a suspensive condition in the form of a mortgage bond as a prerequisite.

The company in returned argued that the condition was merely of several terms and conditions that needed to be negotiated and this condition did not affect the question of price but only the manner of payment and should Mr Mostert have replied on the initial letter and draft deed of sale, that he was not willing to accept the deed of sale subject to this suspensive condition, the company would have removed this suspensive condition.

Mr Mostert however argued and the Court agreed, that there was no duty upon him to supplement any short comings in the draft deed of sale and secondly that when one exercises and option it must be completely in line with the option that was granted and should not introduce any new terms and conditions that was not part of the original option .

In the aforementioned case the option was simply worded that the company would be entitled to purchase the property at a certain price within a certain period of time, no other terms or conditions were added and irrespective of the company’s best intentions by law, the company did not, according to the Court exercise the option correctly and their right in this regard lapsed.

It is important to remember that an option can only be exercised within the terms and conditions as provided for, no more and no less by default of which it will be viewed as if the option was not properly exercised.

ACCEPTANCE OF OFFER TO PURCHASE AFTER THE OFFER HAD LAPSED

EP MANNA VS JM LOTTER

Mrs Lotter placed her property in Sedgefield in the market, via a local estate agent.  The estate agent found a willing buyer who signed an offer to purchase which stated the following :

“irrevocable and expires at noon on the 8th of November and on acceptance shall become a binding agreement of sale irrespective of whether the purchaser has been notified of such acceptance or not…”

The estate agent faxed the offer to the seller on the 9th of November.  The seller then signed the offer and faxed it back to the agent on the 12th of November.

The conveyancer dealing with the transfer then tried to reach the seller to sign the necessary transfer documents, but to no avail.  The seller simply refused to sign the documents and would not answer any calls or respond to any messages and the purchaser then launched an application in the Cape High Court to compel the seller to sign the necessary documents so that transfer could be registered.

The seller’s defense in this regard amongst other were that she had accepted the offer after it had already lapsed, there was in fact therefore no binding agreement and you cannot accept an offer that no longer exists.

The Court held that notwithstanding a late acceptance of the offer, the fact that the purchaser had elected to proceed indicating his willingness to accept the “irregular acceptance” anyway, meant that such an agreement remained valid and binding and the seller was ordered to sign all necessary documents within a specified time failing which the Sheriff was authorized to sign in her stead.

Short Conclusion

Certain conditions included in an agreement are conditions imposed for the benefit of a specific party and can be waived by such party, or if contravened by the other, such contravention can be accepted by the party in whose favor the condition was imposed as in the aforementioned instance.

DOLOMITE RISK MANAGEMENT PROGRAM

A procedure has been implemented by the City of Tshwane to address the problem in the Centurion, Irene and Lyttelton areas with regards to the Geological composition of the land with specific reference to the dolomite formations causing geo technical instability and sink holes.

With each application for the amendment of building plans or zoning the City of Tshwane now requires an undertaking of the managing agent of a Body Corporate or Home Owners Association that a dolomite risk management program has to be compiled and filed with the City of Tshwane by no later than a year after the provision of the undertaking of which a copy is hereby attached and it further a requirement that the City of Tshwane may at any time request progress and reporting back on the status of such a dolomite risk management program.

In many instances geo technical tests were not conducted in the past or required when township establishment took place in these areas and this is a way in which the City of Tshwane is attempting to re-access the situation.

In the light of the aforementioned it is advisable to inform sectional title complexes and home owners associations of this current situation and advise that they commence with the compiling of such a program and report as the net effect is that building plans and applications for rezoning are going to be delayed until such time as the relevant body corporate or home owners association has complied with the City of Tshwane’s request.

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