Agency Agreements: An Extremely Expensive Mistake

25 August 2022

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An Extremely Expensive Mistake

It’s (hopefully) second nature to you. You. Must. Have. A. Signed. Agency. Agreement. But some Auckland agents have just learned that lesson the hard way – being denied their commission on a large lease deal in a recent Court of Appeal decision.

International real estate firm JLL approached Soft Technology JR Limited about leasing opportunities that it saw for Soft Tech’s 27-hectare property in Kumeū. The agents sent Soft Tech’s manager a brochure and draft agency agreement. After meeting with the agents in September 2015, and haggling down the commission rate, Soft Tech’s manager signed a general agency agreement and returned it to the agents.

All good, I hear you say. The agents have a signed agency agreement. What’s this case about?

Well, unfortunately the agents themselves didn’t sign the agreement until over 3 months later – after they had signed up Warner Brothers Studios as a tenant for a 10-month lease. Even then, the agents also failed to send a copy of the signed agreement to the client.

As you will know, under section 126 of the REAA 2008, an agent is not entitled to any commission for their work, unless they have a fully signed and compliant agency agreement, which is returned to the client within 48 hours of the client signing.

While Soft Tech was happy to pay JLL’s commission for the original lease, they were not going to agree to paying commission on ongoing leases with Auckland Tourism, which JLL had also ‘introduced’ to Soft Tech during the Warner Brother’s leasing process.

When JLL sued Soft Tech in the High Court, the judge was sympathetic. The old Real Estate Agents Act allowed you to sign an agreement after work had started, and the failure to sign and send a copy of the signed agency agreement to Soft Tech within the required 48 hours was ‘inadvertent’.

The Court of Appeal judges were not quite so charitable. They called it “a measure of negligence by JLL that cannot be excused as inadvertence.” Ouch.

JLL’s lawyers had suggested that strictly adhering to the 48-hour rule would be unworkable. However, the REA, who got involved in the case, pointed out that it is already their expectation and that most agents can and do comply with.

So, unless your failure to sign and send back an agency agreement truly is ‘inadvertent’ – perhaps you have email troubles, or someone is unwell, then the courts have made it pretty clear you have no right to charge a client for your work.

If you can’t satisfy that 48-hour rule, our advice is simple -start again! Send the client a fresh agency agreement to sign, and sign and return that one immediately. It might be a bit of extra admin, but it could save you thousands of dollars in the long run.

Sam L C P CONVEX JULY22 7023

for more help feel free to reach out. Get in touch with Sam French