Sole Agencies

In this issue it seemed timely to address a practice which appears to be coming into relatively common use and has been the subject of some recent disputes. It is the practice of taking sole agencies and not specifying an expiry date on the listing authority.

I have encountered some of these in disputes that I have arbitrated and as there is not, to my knowledge, a court precedent to rely on, I have been obligated to make my own determination as to what I think is proper, reasonable and supportable.

The first is whether or not such an agency is valid and binding on the vendor. I have taken the view that as the intent of the parties was clearly to create a sole agency then in good faith it seems fair and reasonable to consider such an agency to have been created and therefore valid. That is, it is a sole agency. That seems simple enough.

The greater problem however relates to the uncertainty of the method and timing of the termination. As there is no in-built expiry date this must logically require cancellation by one of the parties.

We all know the procedures for the cancellation of general agencies and that the time cancellation takes effect is determined by the period stated on the listing authority, not necessarily seven days after notification as some people seem to assume. Usually sole agencies cannot be cancelled or terminated by the Vendor unless there is a failure to perform on the part of the Member. This has the potential for all sorts of claims and counter claims including for damages. However sole agencies without a date obviously must be able to be terminated - by either party. Termination by the agent is unusual and of no concern in this deliberation but termination by the vendor is a different matter.

The first principle I believe to be relevant is that notice of termination must be in the same form as that of the contract (listing). Therefore, as sole agencies are required to be in writing, then cancellation must likewise be in writing. Again, simple enough.

However, the problem that does frequently occur is where Agent B wants cancellation of the sole agency of Agent A. Typically it seems to me that Agent B is reluctant to be involved in the cancellation of a sole agency, as they would for a general agency, and they do not assist with appropriate notification. This presumably is because of our Rule 14.10 which states that “A member shall direct any enquiry about the purchase of land or a business to the current sole agent for the land or a business, if the member does not have a current agency appointment.”

Leaving the public to cancel such agencies tends to result in vendors relying on phone calls or writing cancellation notices themselves, and these can be disastrous. The last vendor written one I saw was ambiguous and therefore disputable; in fact it did become a factor in a Member vs Member dispute. Such documents are about as worthwhile as the claimed cancellation that was allegedly notified by telephone call!

It is my opinion that the cancellation of an open ended sole agency is not caught by Rule 14.10 as the Rule relates to an enquiry about the purchase of the land or business, not the appointment of the agent.

Obviously the reason Agent B wants the sole agency cancelled is sometimes because they already think they have a possible buyer for the property. This does not cause a problem as long as they had not yet introduced the party to the property.

To summarise on sole agencies without an expiry date:

1 They are effective and binding.
2 They can be cancelled by the vendor at any time.
3 The cancellation terms are the same as those specified on the listing for a general agency.
4 There is nothing wrong with a Member assisting a Vendor to properly cancel an existing undated sole agency.

These are my personal thoughts not Real Estate Institute policy. They have been developed as a result of my arbitrating Member disputes. This has given me the benefit of hearing our Members argue the respective merits of opposing opinions, not surprisingly always biased towards their own interests, and why not?

As always, I would be pleased to hear any further comments or opinions on this issue whether or not they agree with the above and I invite written thoughts preferably by email. In the next issue I will report on any feedback.

Michael Pinkney FREINZ AAMINZ
National Councillor
First Published August 2006