In the fine print of a Re/Max agent's contract was a clause compelling the buyer to pay a commission even if the sale fell through due to no fault of her own. Picture:  Getty Images
In the fine print of a Re/Max agent's contract was a clause compelling the buyer to pay a commission even if the sale fell through due to no fault of her own. Picture: Getty Images

Recently widowed Mirinda Ellis was devastated to learn that her purchase of a house on Durban's Bluff had fallen through because the seller had a change of heart and pulled out of the deal.

But worse was to come - she emerged from the collapsed deal R92,000 poorer because she was made to pay the estate agent's commission anyway.

She had paid the full purchase price of R950000, which was the bulk of her inheritance from her husband who died in April last year, to the conveyancing attorneys, to be held in trust pending registration of transfer.

After the seller's sudden, last-minute cancellation, Ellis expected to be refunded in full, and when she queried why her refund was R92055 short, the conveyancers, McNaught & Co, told her that the money had been paid to the estate agents, Re/Max Advance Bluff, as sales commission.

On its website, Re/Max lays claim to being South Africa's largest real estate company, saying it is "almost twice as large as our nearest competitor".

Conveyancing attorney Sean Chelin, who is attending to the transfer of a property Ellis has since bought, was appalled that she was made to pay the agent's commission when she was not the party who reneged on the deal, and challenged the estate agency and the conveyancing attorneys on what they had done.

'Assured me it was standard'

"The conveyancers - who are Re/Max Bluff's conveyancers of choice - told me that the agency was entitled to be paid the commission from Mrs Ellis's funds, even though the seller was to blame for the sale not proceeding, by virtue of clause 19.4 of the agreement of sale," Chelin says.

The clause reads: "In the event of the purchaser having paid a deposit to the conveyancers ... and provided all suspensive conditions contained in this agreement have been fulfilled, the purchaser and the seller agree that the conveyancer is authorised ... to pay Re/Max Advance their sales commission, plus VAT, from the deposit. In this regard, upon the conveyancer making payment, the purchaser, seller and Re/Max Advance indemnify the conveyancer and hold them harmless in connection with all and any claims that may arise with regard to the deposit or the payment of the estate agent's commission."

Re/Max claims that the terms of the contract were explained in detail to Ellis before she signed, Chelin says.

But Ellis denies this. "The agent asked me to sign it on my car's boot outside the house. I said I hadn't read through it yet but she assured me that it was just a standard sale contract - nothing out of the ordinary.

"I did everything on time and did not breach the contract in any way, but I'm the one being penalised, with no thought or care about how this will impact my family," says Ellis, who cares for her three grandchildren.

No purchaser "in their right mind" would agree to the inclusion of clause 19.4 in the agreement once the full meaning and effect of the clause was properly explained to them, Chelin says.

Read the fine print

It is "highly unlikely" that any purchaser would agree to a clause in a property sale agreement making them liable for the payment of commission if the sale is cancelled by the seller who no longer wanted to proceed, after the clause and its consequences were clearly explained, says David Warmback, a partner in Shepstone & Wylie's commercial & corporate law department. "So consumers must ensure that they carefully read and understand all terms and conditions ... purchasers often only focus on what is filled in by hand on these agreements, and not the detail in the rest of the printed document."

'Unconscionable conduct'

He put it to the Re/Max franchise that their actions constituted "unconscionable conduct" in terms of the Consumer Protection Act and that clause 19.4 of the contract was an "unfair, unreasonable or unjust" contract term as set out in the act, and that the clause was so adverse to Ellis as to be "inequitable, unfair, unreasonable, unjust and unconscionable".

Chelin got a response from the conveyancing attorneys, saying that Re/Max Advance Bluff was "vindicated in their conduct" and that the clause was "not against public policy" with Ellis having full right of recourse against the seller in such circumstances.

He was advised: "To attempt to recover from the agents here would not be productive as they naturally have the defence of a contract behind them."

Chelin argues that it is highly unusual for property sale agreements to enable the claiming of commission from the party who did not default.

"The standard sale agreement used by two other major KwaZulu-Natal real estate agencies, Acutts and Tyson Properties, provides that they are entitled to claim payment of the commission from monies held in trust pending transfer only where the sale was cancelled due to the purchaser having breached the terms of the sale agreement."

In fact, the offending clause is not even a standard Re/Max clause. "I've had sight of a few other Re/Max franchise sale agreements, which entitle the agent to hold the defaulting party liable for payment of the commission," Chelin says.

Responding, Re/Max Southern Africa CEO Adrian Goslett says he is sorry for the loss that Ellis suffered due to the seller reneging on the deal.

"It is most unfortunate and I believe the purchaser has every right to feel aggrieved. If the clause was explained to me, I would not agree to it."

'Brand reputation'

But the Re/Max franchise in question is independently owned and franchisees are not compelled to use a single, standard contract, he says.

"Each property transaction is unique and requires inclusions and omissions of clauses in contracts, based on the needs and requirements of the contracting parties, which need to be agreed upon prior to signature."

In this case the seller reneged on the deal, "and ... it is the seller that has not fulfilled their obligation to the agreement and should be sued for delivery", Goslett says.

Asked if he is concerned about the Re/Max brand being tarnished by its franchisees having carte blanche to draft allegedly unconscionable commission clauses, Goslett says: "Yes, I am concerned about brand reputation. We are looking into this and dependent on legal advice, we may need to recommend franchises revise their contracts in the future."

The Estate Agency Affairs Board did not respond to requests for comment on the clause in question. Its Code of Conduct is silent on whether the agent can claim commission from the innocent party where there has been a breach or repudiation.

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