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Chaos in the Real Estate Industry – Innocent agents at risk of being forced to refund sale commissions

29 May 2018
robert glavas matthew shnookal
Read Time 3 mins reading time

A recent Victorian Court of Appeal decision[1] has opened the door for a flood of claims against real estate agents, by allowing vendors to demand refunds of almost all commissions paid in connection with the sale of property.

The decision, made in April 2018, found that the standard form REIV “Exclusive Sale Authority” did not comply with the relevant provisions of the Estate Agents Act 1980, because neither the Authority itself, nor the relevant Consumer Affairs Victoria “Rebate Statement”, contained the prescribed words:

“the agent is not entitled to retain any rebate and must not charge the client an amount for any expenses that is more than the cost of those expenses”.

The consequences are dire, and are likely to be felt industry-wide. An estate agent who used the defective forms is not entitled to recover “or retain” any commission whatsoever. It is no defence that the agent acted properly and in good faith. The defect is technical and, at present, cannot be retrospectively rectified.

Speculation has already begun as to whether the legislation will be changed to retrospectively allow agents to retain past commissions. Legal action may also need to be taken on behalf of affected agents against REIV and/or CAV for publishing and distributing the defective forms.

In the meantime, agents face the risk of opportunistic legal claims brought on the basis of the defective forms.

In order to control the extent of damage, all real estate agents who use the standard form REIV documentation (both sales authorities and management authorities may be affected by these defects) should:

  • immediately ensure their current practices and paperwork are up to date and compliant with the Act (in light of the recent decision);
  • in the case of management authorities, consider obtaining new complaint management authorities from all landlords; and
  • seek legal advice if any vendor refuses to pay their commission or seeks a refund of past commissions paid.

Macpherson Kelley specialises in advising real estate agencies on all aspects of their business and values their role in the industry as one of its lead legal advisors. We will be making submissions to the relevant regulators as to corrective action required and will keep you informed of any progress in that regard.

If you believe you may be affected by the above, or if you wish to obtain further advice, please feel free to contact our Property team.

[1] Advisory Services Pty Ltd (Trading as Ray White St Albans) v Stella Augustin & Anor [2018] VSCA 95

This article was written by Robert Glavas, Principal lawyer and Matthew Shnookal, Associate – Litigation and Dispute Resolution.

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Chaos in the Real Estate Industry – Innocent agents at risk of being forced to refund sale commissions

29 May 2018
robert glavas matthew shnookal

A recent Victorian Court of Appeal decision[1] has opened the door for a flood of claims against real estate agents, by allowing vendors to demand refunds of almost all commissions paid in connection with the sale of property.

The decision, made in April 2018, found that the standard form REIV “Exclusive Sale Authority” did not comply with the relevant provisions of the Estate Agents Act 1980, because neither the Authority itself, nor the relevant Consumer Affairs Victoria “Rebate Statement”, contained the prescribed words:

“the agent is not entitled to retain any rebate and must not charge the client an amount for any expenses that is more than the cost of those expenses”.

The consequences are dire, and are likely to be felt industry-wide. An estate agent who used the defective forms is not entitled to recover “or retain” any commission whatsoever. It is no defence that the agent acted properly and in good faith. The defect is technical and, at present, cannot be retrospectively rectified.

Speculation has already begun as to whether the legislation will be changed to retrospectively allow agents to retain past commissions. Legal action may also need to be taken on behalf of affected agents against REIV and/or CAV for publishing and distributing the defective forms.

In the meantime, agents face the risk of opportunistic legal claims brought on the basis of the defective forms.

In order to control the extent of damage, all real estate agents who use the standard form REIV documentation (both sales authorities and management authorities may be affected by these defects) should:

  • immediately ensure their current practices and paperwork are up to date and compliant with the Act (in light of the recent decision);
  • in the case of management authorities, consider obtaining new complaint management authorities from all landlords; and
  • seek legal advice if any vendor refuses to pay their commission or seeks a refund of past commissions paid.

Macpherson Kelley specialises in advising real estate agencies on all aspects of their business and values their role in the industry as one of its lead legal advisors. We will be making submissions to the relevant regulators as to corrective action required and will keep you informed of any progress in that regard.

If you believe you may be affected by the above, or if you wish to obtain further advice, please feel free to contact our Property team.

[1] Advisory Services Pty Ltd (Trading as Ray White St Albans) v Stella Augustin & Anor [2018] VSCA 95

This article was written by Robert Glavas, Principal lawyer and Matthew Shnookal, Associate – Litigation and Dispute Resolution.