The starting point in any dispute over payment of an agency fee is to establish whether or not a contract actually exists between the buyer or seller and the agent. If there is no contract, no fee is payable to the agent. A contract can be in writing, oral or implied from the conduct of the parties.
If, for example, the parties have simply agreed agency terms on a subject to contract basis then it will be difficult for an agent to show that a concluded contract actually exists. Most agents will have their own agency terms but it should not be assumed that these are beyond challenge.
Whether a property transaction is commercial or residential, and whether the agent is acting for the buyer or the seller, the provisions of the Estate Agents Act 1979 (the 1979 Act) and the Estate Agents (Provision of Information) Regulations 1991 (the 1991 Regulations) will apply to any agency contract.
Section 18 of the 1979 Act requires specified information to be provided to the client before a contract is entered into, including details of the agent’s remuneration, how it is calculated and the circumstances in which it will become payable.
Regulation 5 and the Schedule to the 1991 Regulations further require that prescribed information must be given in order to define certain terms that have been held to be particularly confusing for consumers. These include the terms “sole selling rights”, “sole agency” and “ready, willing and able purchaser”.
A recent example of an agency contract being unenforceable because of a breach of the terms of the 1979 Act is Great Estates Group Ltd v Digby  EWCA Civ 1120;  3 EGLR 101 concerning the sale of a £2.95m residential property in SW5 during 2007.
The agent claimed damages for breach of contract because its client had sold the property through another agent during a sole agency exclusivity period. The agent had included the term “sole agency” in its contract, but had failed to include a full explanation of that term, and it had also failed to include an obligation to pay damages in the event that the sole agency exclusivity period was breached by the seller. As a result, the Court of Appeal held that the agent was not entitled to recover damages.
In the court’s view, damages for breach of contract were to be regarded as “remuneration” for the purpose of the 1979 Act. The contract should have provided for the potential liability to pay damages as well as commission, and the circumstances in which those damages would be payable.
To have allowed the agent to recover payment under the contract without having provided these details would have defeated the object of the legislation, which seeks to ensure that estate agents’ contracts are clear and comprehensive in relation to the payment of remuneration.