Protecting your commission

In previous articles, we have discussed agents’ entitlement to commission, including the requirements for a valid appointment, agents’ obligations pursuant to the Property Occupations Act 2014 (Qld) (the Act), and the consequences if a contract of sale is not completed.

In this article, we revisit the requirements to claim commission and discuss what agents can do to protect themselves from being in a position where they are having to chase clients for payment of commission, and the options available to them if a client refuses to pay commission.

Form 6 Appointment

If an agent has been validly appointed to sell a property in accordance with a Property Occupations Form 6 Appointment and reappointment of a real estate agent, resident letting agent or auctioneer (appointment), the agent is ordinarily entitled to receive commission from their seller client upon completion of the contract of sale pursuant to the terms of the appointment. Therefore, it is important that agents ensure they take care completing the appointment.

Section 104 of the Act sets out the requirements which must be satisfied for an appointment to be valid and enforceable. In terms of commission payable, this section provides that the appointment must include a statement about:

• The fees, charges and any commission payable for the service; and
• When the fees, charges and any commission for the service become payable.

The appointment is ineffective from the time it is made if the appointment does not comply with section 104 of the Act.

Agents can negotiate commission with their clients and express the amount of commission payable as a percentage, a fixed amount, or a combination of both. If the commission payable is expressed as a percentage of an estimated sale price, section 105 of the Act requires the appointment to state, in writing, that the commission for the sale of property is worked out only on the actual sale price of the property.

Agents are also reminded of section 110 of the Act, which states that an agent may be reappointed for a sole or exclusive agency for the sale of residential property for one or more terms of not more than 90 days. However, an agent commits an offence if the agent is reappointed for the sale earlier than 14 days before the term of the sole or exclusive agency ends.

The reappointment of a property agent for a further term of sole or exclusive agency for the sale of residential property is ineffective from the time it is made if the property agent commits an offence against section 110(3) relating to the reappointment. A failure to comply with this section of the Act may result in a fine of up to 200 penalty units (which equates to $32,260).

As noted above, an appointment for the sale of residential property under a sole or exclusive agency will be ineffective from the time it is made if the term of the appointment is more than 90 days. It is important that agents carefully calculate the term of the appointment (by calculating the exact days and not just inserting a period of 3 months) to ensure that it is not more than 90 days as the appointment for the whole term (not just any days over 90 days) will be ineffective.

Section 103 of the Act sets out particular requirements for an appointment of a property agent for a sole or exclusive agency. Before the appointment is signed, the property agent must:

- give the client a notice, in the approved form, that provides information about sole and exclusive agency appointments; and

- discuss with the client:

• whether the appointment is to be for a sole agency or an exclusive agency; and
• the proposed term of the appointment; and
• for an appointment for the sale of residential property other than a commercial scale appointment, the client’s entitlement to negotiate the term of the appointment up to a maximum term of 90 days; and
• the consequences for the client if the property is sold by someone other than the agent during the term of the appointment.

The appointment of a property agent for a sole or exclusive agency for the sale of a place of residence or land or an interest in a place of residence or land is ineffective from the time it is made if the property agent commits an offence against section 103 of the Act.

Payment of commission

It is imperative that agents clearly express to their seller clients the commission payable and ensure that their seller clients fully understand the amount that is likely to be payable and when it will be payable. It is important for agents to manage client expectations by having clear and regular communication during the sale process regarding the commission that will be payable.

Clause 5 of the REIQ Essential Terms and Conditions attached to the appointment for residential sales provides that the seller client agrees to pay the agent commission (as specified in Part 7 of the appointment) if a contract of sale of the property is entered into with a buyer, whether within the term or after the term, where the agent is the effective cause of sale within the term, provided that:

• the contract of sale of the property is completed; or
• the seller client defaults under the contract of sale and the contract is terminated by reason of or following that default; or
• the contract of sale is not completed and the whole or part of the deposit is liable to be forfeited; or
• the contract of sale is terminated by mutual agreement of the seller client and the buyer.

In accordance with Clause 6 of the appointment, the seller client authorises the agent and directs the deposit holder, or any other person to whom any deposit is paid under a contract of sale, to pay to the agent any commission to which the agent is entitled immediately upon the entitlement to commission arising and the production of the appointment.

It will assist agents in recovering their full commission promptly if a deposit of at least 3% (not more than 10%), or an amount enough to cover the commission that will be required to be paid, is obtained at the time a contract of sale is entered in to.

Thereafter, it is important that agents send an invoice for their commission to both parties’ conveyancing solicitors well in advance of the settlement date for the contract of sale so that a cheque can be drawn at settlement for the agent’s commission.

Refusal to pay commission

If a seller client refuses to pay commission owing, agents should first explore conflict resolution through negotiation and discussion with their client at an early stage, in order to avoid litigation and potentially incurring significant legal costs.

However, if the matter cannot be resolved at an early stage, agents may commence a minor debt claim to recover commission through the Queensland Civil and Administrative Tribunal (QCAT) (depending on the value of the commission sought). QCAT can hear minor debt claims up to $25,000. The matter will likely progress to a mediation before being listed for a hearing, if the matter is unable to be resolved.

Alternatively, agents may seek to start proceedings for breach of contract in the Magistrates Court (for claims over $25,000 and up to $150,000) by filing and serving a claim and statement of claim. If the seller client wishes to defend the claim, they are required to file a notice of intention to defend and defence within 28 days. The matter will likely progress to a settlement conference in an attempt to resolve the claim prior to the matter proceeding to trial. If the seller client does not file a notice of intention to defend and defence within the timeframe required, agents can apply for default judgment against the seller client.

Conclusion

An agent’s entitlement to commission will always be determined on the facts of each case. However, strict compliance with the requirements set out in the Act, and having a valid and enforceable appointment, are essential in protecting an agents’ entitlement to commission. 

Agents should ensure that they obtain an executed appointment before taking any steps to sell a property and familiarise themselves with the terms of their appointment, particularly what they are required to do in order to be entitled to commission.

Concise and regular communication of costs and commission payable by a client, as well as their rights under the terms of the relevant appointment, will assist in prompt payment of any commission owing.

If agents are in any doubt about their entitlement to commission, they should seek legal advice.

Read another article about property sales: Beware of misapplying deposits in trust accounts.

Or browse our suite of property sales articles.