Property agents could lose out on millions of pounds worth of commission following a High Court ruling which has undermined agents’ entitlement to fees for introducing buyers to sellers, according to law firm Wedlake Bell.
Jeremy Raj, partner in the property team at Wedlake Bell, said the case Estafnous v London & Leeds Business Centres Limited the High Court ruled that agents might not be entitled to commission when a buyer purchases property through acquiring shares in a company that owns the property rather than purchasing the property itself.
He said that the two types of purchases are 'self-evidently different transactions' but when applied to agents’ contracts it could mean that agents may not be entitled to their commission.
'Agents could collectively be looking at millions of pounds of commission being withheld,' he said.
In the case, the seller had agreed to pay the commission when the buyer completed the ‘purchase of the property. While the agent did introduce the buyer to the seller, the buyer did not buy the property itself, but the shares of the company that owned the property. 'This is a common practice to save stamp duty land tax.'
The court held that the agreement between the seller and buyer only stipulated the payment of a commission in case of the 'purchase of the property which did not occur since the buyer had purchased the shares of a company owning the property, not the company itself.'
Raj said: 'As a result of this decision, sellers in similar circumstances could legally refuse payment of the agents’ commission on the basis of any contract which only provides for payment on completion of the purchase of the property.'
He advised agents to review the terms and conditions of their agreements with the sellers to ensure the commission entitlement is not affected by the way the deal is structured.