Introduction and Agency Cancellation

An issue that seems to be cropping up a lot lately and about which there appears to be a lot of misunderstanding is that of the rights and obligations of a Member after their agency has been cancelled and another Member appointed as sole agent.

The confusion relates to the rights under the terms of the respective agency appointments, REINZ Rules and the circumstances of, and following on from, the introduction. (The latter issue has been addressed in earlier articles, all of which are available on reinz.co.nz under the section “Knowledge Base.”)

Some members believe that the terms of their appointments entitle them to continue or even enter into negotiations after their agency is cancelled (i.e. after the end of the period of notice, often 7 days) if they had introduced a buyer during their agency. (Note: introduction, negotiation and selling rights are not effected until midnight on the last day of the cancellation notice period)

Others argue that the terms of their appointment preclude any other Member from any contact with the vendor or entitlement to commission for a sale made while their sole agency is in effect.

Irrespective of the those claims, we must all be mindful of Real Estate Institute Rule 14.10 which is quite clear in that it states “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.”

While this might at times seem harsh and unfair, it is not open to interpretation and is specifically designed to protect the Vendor from being liable for two or more commissions. It reinforces the cancellation of an agency which, if properly completed, is a direct written instruction from the Vendor, even if organised and sent by the new sole agent.

The Rule means that the new agent (let’s call them Beta) has the exclusive rights to conduct any negotiations during the term of their sole agency. The introducing agent (Alpha), having lost their agency appointment, must therefore defer to the instructions of Beta. In most of these situations, Members negotiate a commission sharing arrangement in order to best protect the interests of the vendor and purchaser, and that must always be our primary objective (provided they have done nothing underhand!).

 

However problems occur if Beta as sole agent refuses to cooperate with Alpha or will only cooperate on unreasonable terms (in the opinion of Alpha). In these circumstances it is my opinion that Alpha should allow Beta to conduct the business on the terms that Beta stipulates and, if a sale is concluded, Alpha can then consider its options. The most obvious is for Alpha to declare the matter to be a commission dispute as provided for in the REINZ Rules.

While it is important for Alpha to comply with Rule 14.10, it is equally important for Beta to remember that Alpha may still be legally entitled to a commission from the Vendor because of their introduction of the purchaser. As already stated, this depends on the wording of the appointment (listing form) and the circumstances of, and following on from, the introduction.

As these would generally not be fully known to Beta prior to the two (or more) Members getting together, Beta should always be mindful that Alpha may have a claim for all, or at least some of a commission.

Any Member securing a sole agency for a property previously listed with another Member must comply with REINZ Rule 14.4 which stipulates “Before accepting an appointment as an agent for land or a business, a member shall advise the principal of the possible need to terminate and the possible consequences of unilateral termination of any current agency appointments in respect of that land or business.”

Unfortunately subsequent agencies, Beta in this case, in their endeavours to secure the new sole agency, sometimes overlook the requirements of this Rule and fail to comply with it.

If it were to be shown in a commission dispute that Beta had not properly advised the vendor of the implications of cancelling Alpha’s agency, they could find an Arbitrator unsympathetic to their position. The most obvious implication of the vendor cancelling one agency and appointing another is the risk of the vendor becoming liable for two commissions.

The Rules and the entitlement based on introduction do potentially conflict but they merely address the respective legal contractual positions that occur when a Vendor chooses to change to one, or more, subsequent agencies.

Contracts of agency (listing forms) create the contractual relationship between vendor and agent and in any situation of dispute they are the basis of rights and obligations. What is certain however is that the rights of an introducing agency are not automatically lost when their agency is cancelled.

While the first objective must always be to promote and protect the consumer, we should always be looking to properly and professionally protect our own position. In this regard, an occasional review of our listing forms can be time well spent

Provided everything is done correctly by all concerned and with common sense prevailing, and perhaps a few reasonable concessions being made, everyone should be able to resolve the matter as professionals, complete the sale to the satisfaction of the clients and move on to the next one.

Michael Pinkney FREINZ AAMINZ
National Councillor
First Published April 2008