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Section 58 of the Property, Stock and Business Agents Act 2002 provides an agent must not enter into an agency agreement with a person in respect of the sale or purchase of residential property if:

(a) the agreement provides for an entitlement to commission in respect of services to be provided at a time when the property is or is to be the subject of a sole agency agreement or exclusive agency agreement with another agent for the provision of those services, and

(b) the agent knows or has reasonable cause to suspect that the person has entered into that sole agency agreement or exclusive agency agreement.

Where two exclusive agency agreements have been entered into the agent claiming commission pursuant to the agreement is called upon to show that the agent can be seen to be the effective cause of the sale.

In order for an agent to secure a commission, mere introduction is not enough and there must be a causal link between the introduction and the ultimate sale of the property.

We examine two cases below.

Lehtonen v John McMahon Realty (Commercial) [2007] NSWCTTT 76

On 15 March 2006, Lehtonen entered into an exclusive agency agreement with John McMahon Realty expiring on 30 April 2006. The exclusive agency agreement provided that the payment of commission was effective should the property be sold during the exclusive period. The agreement also provided that the payment of commission was effective should the agent introduce a purchaser who purchases the property.

On 28 April 2006 the Purchasers made an appointment to inspect the property with John McMahon Realty. However, that appointment was cancelled. The property was later inspected on 2 May 2006.

On 1 May 2006, Lehtonen entered into an exclusive agency agreement with LJ Hooker Casino, and Contracts were exchanged on 30 May 2006.

John McMahon Realty claimed a commission pursuant to the exclusive agency agreement, claiming the Purchasers were introduced to the property on 28 April 2006.

The Tribunal found that the Purchasers were not “introduced” to the property on 28 April 2006 as the physical element of actually being shown the property’s internal and external parts did not occur until the 2 May 2006.

Hence John McMahon Realty was not entitled to a commission.

Martinis v Raine & Horne Hornsby WPNL Serv. P/L (Commercial) [2005] NSWCTTT 69

On 25 October 2003, Martinis entered into an exclusive agency agreement with Raine and Horne Hornsby, expiring on 25 February 2004.

On or about 18 February 2004 the Purchaser was introduced to the property by Raine and Horne Hornsby. An offer to purchase the property was made, but that offer was rejected.

On 19 February 2004 Martinis wrote to the agent advising that Martinis was not satisfied with the agent’s service and terminated the agreement. Notwithstanding termination of the agreement, the agent continued to negotiate with the Purchaser.

On 26 February 2004, Martinis entered into a new exclusive agency agreement with J Pye Real Estate.

On 3 March 2004 the property was sold to the Purchaser by J Pye Real Estate.

Raine and Horne Hornsby claimed commission as a result of being “the effective cause” of sale which arose from the introduction of the purchaser to the property.

Applying a natural or ordinary interpretation to the term “introduction” means that the agent brought the property to the purchaser’s attention by advertisement, verbally or otherwise and the property was unknown to the purchaser beforehand. Therefore the Tribunal found that Raine and Horne Hornsby were responsible for the introduction of the Purchaser to the property.

Additionally, Raine and Horne Hornsby claimed that the “chain of causation” was unbroken because the Purchaser was and remained aware that the property was for sale by reason of the original introduction. The Purchaser “followed” the property from the first agent to the second agent with only just a few days of intermission.

The Tribunal was satisfied that the Raine and Horne Hornsby introduced the property to the Purchaser and continued with her interest in the property even after the second agent took control of its sale. The prima facie obligation to pay commission would only end when the Raine and Horne Hornsby’s introduction ceased to have a material bearing on the sale or the introduction was no longer instrumental Therefore, Raine and Horne Hornsby was entitled to a commission.

If you are selling property and wish to change agents, you may be liable for two commissions. If you require assistance in respect to agency agreements, you should contact our property team at Matthews Folbigg.

Anna Zdrilic

Director, Property and Commercial Groups Phone:  02 9806 7461


DISCLAIMER: This article is provided to clients and readers for their general information and on a complimentary basis. It contains a brief summary only and should not be relied upon or used as definitive or complete statement of the relevant law.