On 31 July 2015, the County Court of Victoria handed down a judgment requiring a real estate agent to refund $3 million in commissions received due to its failure to strictly comply with its disclosure obligations contained in the Estate Agents Act 1980 (the Act).
In the case of Cross Country Realty & Anor v Ubertas 350 William Street Pty Ltd  VCC 2012, a real estate agent sued a developer for the sum of approximately $250,000 which it alleged was owing under an agreement pursuant to which the developer had already made payments of $3 million in commission to the agent for advertising and off the plan sales of apartments in a development in the Melbourne CBD.
The developer said that the agent had failed to comply with its disclosure obligations under the Act and counterclaimed for the refund of the commission which it had already paid.
The court was asked to consider Sections 49A and 50 of the Act, which provides that an estate agent must not obtain, or seek to obtain payment in respect of work done unless the agent discloses and provides (inter alia) the following information:
- That the commission to be paid is subject to negotiation;
- A statement that if a fee payable is calculated on a percentage basis, a statement of that fee expressed as both a percentage and dollar amount;
- A statement in a form approved by the Director of Consumer Affairs Victoria as to where a complaint concerning the commission under the engagement can be made; and
- A rebate statement that complies with s49A of the Act.
Importantly, pursuant to Section 50 of the Act, an estate agent is not entitled to recover or retain any commission or outgoings in respect of any transaction unless the agent has complied with Section 49A of the Act.
The developer claimed that the agent had failed to comply with Section 49A, because the agreement under which it was engaged did not contain a compliant rebate statement or a statement in relation to complaints and that accordingly, it was not entitled to recover any outstanding commission or retain any commission already which it had received.
The agent admitted these breaches, but said that the breaches were minor and should not prevent recovery of the outstanding commission, and that it was otherwise entitled to the commission under equitable principles.
In considering this matter, the Court referred to analogous cases in which it was held that estate agents cannot avoid compliance with similar legislation by relying upon equitable principles and concluded that the agent’s claims for payment could not succeed. The Court dismissed the agent’s claim and made an order requiring the agent to refund the $3 million in commission which it had already received from the developer.
What does this mean for you?
This decision will have important consequences for both real estate agents and property developers.
This judgment highlights the strict requirement for an agent to comply with its disclosure obligations under the Act, and confirms that a failure to comply may preclude the agent from receiving or retaining any commission in relation to a non-compliant engagement.
In light of this judgment:
- Real estate agents should immediately have their engagement and appointment documents reviewed by a lawyer to ensure compliance with the Act;
- Real estate agents who have failed to comply with the Act in the past risk being ordered to repay commission received as far back as six years ago and should consider potential restructure options to minimise exposure moving forward; and
- Property developers may be able to have commission paid to an agent refunded if the agent’s engagement documents do not strictly comply with S49A of the Act.
The real estate agent has obtained leave to appeal this matter, and the findings of the appellate court will be of great significance to the property development industry. An update will follow upon the conclusion of the appeal.