In the recent Victorian Supreme Court of Appeal decision of Advisory Services Pty Ltd (t/a Ray White St Albans) v Augustin & Anor [2018] VSCA 95 the Court found that an estate agent was not entitled to claim commission totalling $385,000 as their written authority did not contain the precise wording as required by the Estate Agents Act 1980 (Vic) (Act).

Background

Augustin (Respondent) owned the property at 382 Greens Road, Keysborough and in signing an exclusive sale authority, engaged Advisory Services Pty Ltd (trading as Ray White St Albans) (Applicant) for the sale of the property. The Respondent sold the property however the purchaser defaulted under the Contract. The Respondent then engaged another agency to assist in selling the property once more, which the Applicant claimed was during the period of the exclusive sale authority. A dispute arose and the Applicant sued the Respondent for commission on both sales, totalling $385,000.

The trial judge in the Victorian County Court found that the authority was not enforceable, and therefore the Applicant was not entitled to that commission. The Applicant appealed that decision. The Victorian Supreme Court of Appeal looked at whether the Applicant was entitled to sue for any commission as their authority did not strictly comply with the Act.

Decision

The appeal was dismissed. The Victorian Supreme Court of Appeal upheld the decision of the trial judge and found that the Applicant was not entitled to the commission as its sale authority was unenforceable.

Pursuant to section 49A(4)(c) of the Act, an authority must contain a ‘rebate statement’, which statement:

  • is in a form approved by Consumer Affairs; and
  • states that an agent is not entitled to retain any rebate and must not charge the client an amount for any expenses more than their actual cost.

The Court found that the Act must be interpreted strictly in favour of consumers. A statement that an agent will not retain any rebate was held to be materially different to a statement that an agent is not entitled to retain any rebate. This is irrespective of whether the agent was seeking to retain a rebate in any event. Strict compliance is required.

The authority that was used by the agent in this instance contained language based on one of two forms approved by the Director of Consumer Affairs Victoria which is available for download from their website. One of these forms contains the satisfactory wording as required by section 49(4)(c) of the Act, but the other does not.

Impact of decision

Estate agents need to review their engagements and authorities to ensure they strictly comply with section 49(A) of the Act and contain the correct statements in accordance with the Act concerning the receipt of commissions.

As a result of the decision in this matter, the instructions for using the non-compliant form on the Consumer Affairs website have now been amended to note that agents still “need to include all the other requirements of section 49A” of the Act. Accordingly, agents cannot merely rely upon the forms posted on the Consumer Affairs website. This is the case notwithstanding that the statement itself, approved by the Director, provides that it is approved for the purposes of section 49A(4) of the Act.

The current form as approved by the Director of Consumer Affairs Victoria for circumstances where a rebate is not to be received does not contain wording sufficient to comply with the Act.

If you are an estate agent, it is imperative you ensure that your written engagement or appointment strictly complies with the Act. Non-compliance may result in:

  • over $15,000 in penalties for each breach of the Act;
  • you being unable to claim payments (including commission); and/or
  • you being sued for unlawfully claiming payments.

If you are a landowner who has sold a property or if you are in the process of selling a property and you have made or expect to make payments to an agent, you may wish to have your written engagement reviewed to determine your liabilities and whether the engagement strictly complies with the Act.

The REIV has taken steps to update its online forms and has provided advice to agents as to how to correct already purchased hard copies of sale authorities.

Ultimately, it is now incumbent upon the Victorian Parliament to immediately provide a legislative solution to rectify an obvious administrative error in the Consumer Affairs forms. While a legislative solution has been mooted, it is yet to be put before Parliament. We will be making submissions to the government in this regard.

Given the forthcoming election in November 2018, it will be interesting to see whether the government will prioritise the rectification of this important issue in the real estate industry.