The Ombudsman and dual fee agent disputes – the clanking fist of bureaucracy or a helping hand for the consumer?

It might shock (or amuse) you to know that I am very familiar with the environs of the Law Courts. Not because I’ve done anything wrong; on the contrary, for the last 43 years I have felt obliged to try and clean up this nebulous area of the Estate Agents’ Act. This has resulted in some bold, litigious commitments, involving at least 12 court cases.

You have to remember that in certain parts of London, the 70s and 80s property market was more like the Wild West, rather than a gentleman’s understanding of honour between estate agents.

My findings are that in order to justify a sales fee the estate agent must prove, beyond reasonable doubt, that they are the ‘effective cause’ of the sale. This is not, nor should be, necessarily time limited, since each case should be judged on its own merits. The consequence is that if the Ombudsman tries to impose a fixed period of six months, as the overriding criteria, certain agents who may have a perfectly legitimate fee claim, could lose out.

Moral Duty

If vendor clients at Glentree International choose to instruct another agent, by replacing us or working alongside us, it is our moral duty to inform them about the risk of a ‘dual fee’ and we have been doing this for many years.

True to form, vendors do not always appreciate our reasoning. We speak slowly and carefully when pointing out the perils; their ‘thinking process’ is that we are just trying to protect our own selfish interests. And then there are vendors who think they know better and swallow another agent’s facile rhetoric, about selling their property at more than market value. Usually clients want change for change sake and common sense is the casualty.

Logic tells us that two agents could rightfully claim a commission for the introduction of the same applicant, however from my experience, judges in litigious cases are very reluctant to adjudicate that both agents are the ‘effective cause’ of sale. This is supported by numerous precedents in contract law.

Toughness competition

Nevertheless, if two chiseling, belligerent agents, with Pound signs in their eyes, can’t agree between them how they are going to split the pie, the seller can be unwittingly dragged into legal proceedings. At £250,000 for a seven-day trial, this is not a cheap resolution, once you’ve totted up the price of solicitors, barristers and other legal pestilence who shoot the breeze in court, at huge expense.

Frankly, whenever I have been in this situation and both agents are trying to win a toughness competition, I have suggested that the disputed monies are passed to a charity, which dependant on the altruistic nature of my opponent, is a simple solution and does the trick.

We were involved in a notable case – Favermead vs Glentree – where steel billionaire Lakshmi Mittal bought his $100million Kensington Palace Gardens home from Bernie Ecclestone the doyen of Formula One.

It was one of the world’s largest residential transactions, in 2014, at the time. Our client, was the previous owner of the property, David Khalili, self proclaimed Islamic art specialist. He sold the property to Mr. Ecclestone together with an agreement in place, which allowed him a 5 year quasi-joint venture arrangement on any future sale, which stipulated that any profits would be shared between them. Incidentally, we did not have any direct contractual commitment with Mr. Ecclestone.

Without wading too far into the minutiae swamp, although Mr. Khalili was not officially the seller, he nevertheless carried the warrant of authority from the beneficial owner and was still technically liable to us, if we sold the House. We did introduce Mr. Mittal, who subsequently involved a ‘friendly intermediary’
(for his own reasons) who was then able to claim a fee against Mr. Ecclestone (the formal owner) and pocket $3million. Nice work if you can get it!

At the end of a 14-day trial, infested with hordes of Silks, we lost, but justice prevailed when we won at Appeal. Thankfully, the Appeal Court Judge in the proceedings, decided that the fee paid by Mr. Ecclestone was in effect a ‘quasi purchaser’s agent’s fee’ and not a seller’s fee, which allowed us to claim our fees against Mr. Khalili, in order that two fees were not paid for the same introduction. These disputes are more complex than a Chinese puzzle and a lot more expensive.

For your interest, the claim for our fees in this debacle was circa £3million, whilst the total legal costs were about £1.2million. With stakes as high as these, it’s less risky to buy a farm in Zimbabwe.

‘Effective cause’

Meanwhile, this knotty problem of ‘effective cause’ can be exacerbated by circumstance. For instance, the wife of a buyer could see a property through one agent and six months later, the husband unwittingly could see the same property through another agent. The reason for the time delay could have simply been that they were trying to sell their own property in the interim and that the original interest had not lapsed. Who can say which one of these introductions was effective?

In another scenario, Mr. Green could be looking for a property on behalf of a buyer, Mr. Mohammed, yet the formal purchaser on the contract could be a nominee company, Appletree Ltd. Three separate agents, instructed on the same property, could make appointments for these three entities, all with different names given to the vendor. However, all represent the same interest. So far, so complicated.

Even if the seller meticulously noted the names of each party, they all still appear unrelated and would not raise the alert in respect of a multiple claim from the appointed agents.

In yet another scenario, one agent could introduce an applicant to a property, who may not have been able to purchase at that time. However, 6 months later they may be better disposed and go to inspect the property through another agent – after all, there’s no inherent liability for the purchaser. Prima facie, the first agent should trouser a fee. The reality is, though, that it was the second agent who chatted up the buyer and clinched the proverbial. One thing is for certain, this hotbed of litigious landmines cannot be neutralised by any amount (and there have been lots) of clumsy bureaucratic directives.

Like barbed-wire toilet roll, the last thing we need is ‘the government trying to do something’ where officialdom is free to exercise its destructive idiocy. The examples here show that limiting one agent’s claim by time alone is heavy-handed and maybe inequitable.

This is an issue that can lead to a whole world of unnecessary pain.

Avoidance of the moat of boiling fire

To try and avoided this moat of boiling fire, we usually advise clients to instruct a sole agent, preferably with sole selling rights. Here you have one contractor who is there to be the seller’s voice in the market place and if they then need to involve other sub-contracting agent’s so be it. The seller only ever has one fee to pay and a discounted one at that, since the fee for a multiple agency is higher than a sole agency. The next step is to do one’s research and identify a company of solid, well-chronicled provenance, that is best equipped to handle the sale.

Of course, an agent should be given a reasonable time to sell the property. However, if the seller is hell-bent on ‘changing the guard’ then the former sole agent must submit a list of names, which the second agent when instructed, should exclude from any claim for fees if they sell the property.

Cleaning up this labyrinthine process is not easy, but if it is possible it should save a few headaches and hopefully, everyone should be better off.