The recent District Court of Queensland case of Equity 2 Pty Ltd v Best Price Real Estate Pty Ltd [2020] QDC 180 (‘Best Price Real Estate’) highlights that a lack of understanding when it comes to contract terms could cost real estate agents their agent commission.

Best Price Real Estate involved a dispute arising from a conjunction agreement made between the two parties. The agreement was in relation to an agent’s entitlement to agent commission on the sale of a parcel of land. The Court held that where a buyer, who was not specified in the terms of the contract, purchases the land, the entitlement to commission will not be recognised.

What is a conjunction agreement for agent commission?

Conjunction agreements arise in real estate sales involving two agents which creates the following scenario:

Agent A is under an obligation to sell a property in accordance with the terms of the agency. When they transfer their right to sell to agent B, a conjunction agreement is created. This agreement, consenting for agent B to assist in the sale, is conditional on the commission being split between the two agents.

 

Best Price Real Estate: Agent commission dispute

The issue in dispute was whether the respondent was entitled to a percentage of the applicant’s commission from the sale of land. Whilst there was a conjunction agreement in place, the property was sold to a different entity than that specified in the agreement. The respondent did not facilitate the acquisition of the alternative buyer.

In this case, the agreement was clear. The property was to be sold to a particular buyer by a certain date. As a result, when the property was sold to a different buyer, this was under a separate contract. Therefore, the respondent was not entitled to a percentage of the commission under the conjunction agreement.

 

The decision of the Queensland District Court

The Court determined that in the event there was ambiguity surrounding the prospective purchaser, the conjunction agreement may have been recognised before the Court. This would give rise to the respondent’s entitlement to commission. However, this was not the case. The terms of the contract were clear and thus, the respondent was not entitled to their share of the commission as set out in the conjunction agreement.

The respondent argued that they were entitled to a percentage of the commission on the sale on multiple grounds, including:

1. the implied terms of the contract meant that the applicant was entitled to the commission, notwithstanding the fact that the property was sold to a different buyer;
2. the applicant acted in breach of their implied duty to cooperate with the terms of the contract; and
3. the applicant was under a duty of good faith which required performance of the contract by way of paying the commission to the respondent.

In a lengthy hearing before the District Court, the judgment followed that it was not just and equitable to recognise implied terms in the contract. In doing so, it would ‘disproportionately benefit the respondent and burden the applicant’.

Further, the court denied the respondent’s argument that the applicant had a duty to cooperate. This was because performance of the conjunction agreement relied solely on the respondent fulfilling the promise. Therefore, mutual performance was not required meaning that the duty to cooperate did not apply.

Finally, in relation to the respondent’s argument on the grounds of good faith, the Court held that the applicant acted reasonably and did nothing which would constitute a contravention of the duty to act in good faith. This is due to the fact that the sale was not made with the intention to deprive the respondent of their commission.

 

Implications for agent commission

The decision in Best Price Real Estate shows the reluctance of courts to read outside the terms of an agreement. It is important when entering a contract to understand the nature of the terms. As in this case, anything which is not expressly stipulated will not be recognised solely on the grounds of good faith.

If you are an agent who has entered a conjunction agreement and you are concerned about your entitlement to agent commission, contact us to speak with a lawyer in our experienced litigation team. We would be happy to advise you in relation to enforcing the terms of a contract.