Are you sure you're entitled to commission?
Anyone who acts as an agent and believes they are entitled to receive commission following the introduction of a potential purchaser to a seller needs to take heed of a recent legal development because, unless Agreements / Terms and Conditions are drafted to cover all eventualities, you could walk away with nothing.
The Case
In Estafnous v London & Leeds Business Centres Limited (2009), the High Court decided that the agent was not entitled to receive commission.
The claim in this case was based on a written Agreement between Mr Estafnous and London & Leeds Business Centres Limited (LLBC) under which, if Mr Estafnous introduced a potential buyer for a particular property to LLBC, Mr Estafnous would receive a commission payment in the region of £2million when the buyer completed "a purchase of the property".
Mr Estafnous subsequently introduced Mr Kapoor, a potential buyer, to LLBC. Initial negotiations for the purchase of the property proceeded in 2001. However, in 2002 it was agreed that Mr Kapoor would actually purchase the company that owned the leasehold interest in the property rather than the property itself in an effort to make a saving on stamp duty.
Upon completion of the share sale to Mr Kapoor, Mr Estafnous claimed his commission payment from LLBC. LLBC argued that as the property had not been sold, Mr Estafnous was not entitled to the commission.
The Court found that whilst Mr Estafnous had introduced Mr Kapoor to LLBC, the Agreement only covered the purchase of the property and as Mr Kapoor had actually purchased the shares of the company owning the property, a "purchase of the property" had not been completed and therefore Mr Estafnous was not entitled to receive the commission payment.
Conclusion
The terms in the Agreement in this case could be found in any standard agreement between an agent and a seller in respect of a commission payment. Few agents are likely to have either a separate provision dealing with share sales or one which covers a scenario whereby the nature of the deal changes during the course of a transaction.
It is certainly possible that the nature of a deal could easily change if a potential purchaser believes there is a tax saving to be made by acquiring the shares of a company which owns a property rather than purchasing the property itself.
These days everyone is looking to make a saving wherever possible and therefore we could see more and more of these types of transactions and unless your terms and conditions provide for this scenario, you will not be entitled to commission.
What you should do to protect your commission
In order to ensure your entitlement to commission is not put at risk following the decision in this case, we would recommend that you review your standard terms and conditions. If you would like assistance with updating these so that they provide for any changes in the structure of a transaction, please contact Louise Thompson in our Corporate Team.
Alternatively, if you are experiencing any difficulties in recovering your commission payments, please contact Marie Forbes in our Litigation Team.
To download a PDF version of this article please click here.
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