SALES DEPOSITS – WHAT TO DO AND WHAT MISTAKES TO AVOID
There will regularly be disputes between Principals and Agents where the Principal(s) refuses to pay the Agent’s commission for the sale of a property. These disputes will generally occur where the Principal alleges that the Agent carried out their role negligently or where they claim that the Agency Agreement was defective.
In disputing these allegations, Agents will regularly make the following errors in taking steps to obtain their commission from the Vendor:
- They attempt to lodge a caveat against the property to prevent settlement from going through when they do not, in fact, have an estate or interest in the land.
An Agent has no right to lodge a caveat if they do not have an estate or interest in the land. If you lodge a caveat without reasonable cause, you may be liable to pay compensation to any person who suffers a financial loss as a result, which in this case is the Vendor.
- They try to lodge an Application with the NSW Civil and Administrative Tribunal
An Agent is unable to lodge an Application at the NSW Civil and Administrative Tribunal (Tribunal) as this process is only available to the person who has been served with an Agent’s Statement of Claim for commission owing under section 36(4) of the Property Stock and Business Agents Act 2002 (NSW) (“the Act”), this being the principal. This reflects the fact that the Tribunal only has jurisdiction to hear claims on behalf of “consumers” in accordance with the Consumer Claims Act 1998 (NSW).
- They believe that they hold a statutory lien over the deposit monies prior to settlement.
The deposit is the legal property of the Purchaser until settlement has completed, with the Vendor obtaining an equitable interest in the deposit upon exchange of contracts. After settlement, it is the Vendor who obtains the legal interest in the deposit. If, at any time prior to settlement, both the Vendor and Purchaser authorise the release of the deposit, the Agent must release the entire deposit if directed to do so. The Agent has authority prior to completion to retain the balance of their commission if directed to release the whole deposit.
After settlement, as the vendor retains the full legal interest in the deposit, the Agent has a common law lien over the funds, which is recognised by section 88(2) of the Property Stock and Business Agents Act NSW (2002). After settlement, the agent is obliged to release the deposit, less the commission, however, if a dispute arises, the balance of the commission must remain in the Agent’s trust account until the matter is resolved between the Agent and the Vendor in the tribunal or court system.
If the Agent withholds the deposit after receiving these instructions from the Purchaser and Vendor, they risk breaching the Act and may be penalised by NSW Fair Trading.
What you should do
Below is a summary of the correct process required to obtain your unpaid commission from a principal.
Section 36 Statement of Claim
Upon settlement, the first step in your claim process is to serve a Statement of Claim, similar to a letter of demand in this context, in accordance with section 36 of the Act. Proceedings cannot be commenced by a licensee in any NSW Court until 28 days after the Statement of Claim has been served on the Vendor in person or by post.
The section 36 Statement of Claim has strict requirements that must be complied with, notably that it must be in writing, must set out the amount of commission claimed by the Agent and must contain details of the services performed by the licensee in respect of which the remuneration or expenses are claimed.
As specified in the legislation, a person who is served with a Statement of Claim in accordance with section 36 of the Act may apply to the Tribunal or Courts for Determination of this matter in accordance with the Consumer Claims Act 1998 in relation to whether the licensee is entitled to the whole or any part of the amount specific in the statement of claim and/or whether the whole or any part of the amount is reasonable.
Shareena Jadhav Senior Associate Phone: (02) 9267 6263 Email: shareena@jemfish.com.au
Greg Jemmeson Partner Phone: (02) 9267 6263 Email: greg@jemfish.com.au