Estate Agents: Are You Getting Paid?

It has been quite some time since estate agents faced the prospect of doing the work associated with a property sale and then not getting paid. We are seeing an increasing number of mortgagee sales, sales by receivers and liquidators. Below are some tips to gain protection from these events.

The main reason why an estate agent doesn’t get paid is if a vendor gets into serious financial difficulties because the Agent’s Authority doesn’t create “an interest in land”. Effectively the agent becomes an unsecured creditor along with everyone else such as suppliers and the tax office. Some agents have provisions in their Authorities that create an interest in land and allow the agent to lodge a caveat against the property. This approach is only useful if there is some equity left in the property. If in a mortgagee sale situation where there is no equity in the property then the caveat would not help.

The main areas where an agent can find themselves in a situation where they have done the work but may not get paid are as follows:

1. Mortgagee in Possession

This is where there is a mortgage over the property and the mortgagee has taken possession of the property and sold it. In these circumstances there is sometimes no equity in the property, the property has declined in value and the original home owner has been in default with the bank which has incurred higher interest rates and substantial fees.

2. Receivership

This really only applies to companies and would more often be seen in property development. This is a situation where a bank has a debenture (mortgage) over the company and has appointed a receiver to look after its best interests. The receiver’s role is to look after the secured interest holder (normally a bank) and the receivers are under no obligation to pay any commissions to agents.

3. Liquidations

You would have heard of the term liquidation. This is when the company is basically has come to an end and its affairs have been wound up. As with a receivership the liquidator is not obliged to pay agents commissions if the property was sold prior to the appointment of the liquidator.

The following is some tips that may be of use, I acknowledge that they may not be all that practical:

1. Caveat

You may wish to consider having a charging clause in your authority that at least would allow you to lodge a caveat. This will often get the vendors interest and can be useful in recovering disputed commissions and advertising expenses. Lodging of a caveat would not directly ensure that the agent gets paid its commission.

2.Receiverships and Liquidations

If a company goes into receivership or liquidation then you should immediately contact the liquidator/receiver and make yourself known to them. In some circumstances the receiver/liquidator will in fact pay the commissions and may instruct you to continue on with the sale if it is a significant project. You need to make yourself useful to the receiver/liquidator as they will be extremely keen to ensure that the sales already made continue and may possibly instruct you to continue with the sale process. If you are instructed by a receiver or liquidator after they have been appointed then they are obligated to pay you for sales affected after their appointment.

3. Personal Guarantees

You may consider getting a personal guarantee from the directors of a vendor company or a guarantee from a third party. This may be easier said than done.

4. Being Paid Up Front

There is effectively no reason why a vendor couldn’t pay all of their funds up front or possibly at the time of sale. If this was done, whether or not a settlement is effected and whether or not a receiver/liquidator/mortgage in possession is appointed will not affect you. In some circumstances there may be a claim for a preference payment. It would be better to have the commission rather than not.

Author: John Turnbull