R7. Remuneration

8. Remuneration

No estate agent shall –

Code:

8.1       stipulate for, demand, or receive directly or indirectly any remuneration, commission, benefit or gain arising from or connected with any completed, pending or proposed contract of sale or lease which is subject to –

8.1.1    a Suspensive condition, until that condition has been fulfilled; or

8.1.2    a resolutive condition, during the time that the transaction may fall away as a result of the operation of the said resolutive condition:

Provided that the foregoing shall not apply if

(aa)      good cause exists; and

(bb)     the party liable for the payment of remuneration, commission, benefit or gain has expressly consented in a written document executed independently of the contract in question, to such payment at any time, although the said contract is subject to a Suspensive or resolutive condition, as the case may be; and

 (cc)      such document contains an explanation of the implications and financial risks for such party of such payment; and

(dd)     such document is signed by such party and the estate agent in question.

Discussion:

At common law, an estate agent is entitled to payment of commission on a transaction only once a binding agreement has been concluded. In this context, an agreement is binding only if all suspensive conditions have been fulfilled. It is clearly not in the interests of the seller to be placed in a position where he is liable to pay commission whether or not suspensive conditions have been fulfilled since that would mean that he is liable to pay commission whether or not a sale actually materializes.

Examples of suspensive conditions normally found in agreement of sale are that the purchaser is to obtain a loan to cover the balance of the purchase price from a financial institution, or that he is to sell his own house, before or on a certain date.

If a contract of sale is subject to a resolutive condition the contract is binding on signature thereof by both parties but terminates upon fulfilment of the resolutive condition. A typical example of a resolutive condition would be a stipulation in an agreement of sale of a proposed sectional title unit that the sale will terminate should the sectional title register not be opened before or on a certain date. In such a case, it would obviously not be in the interests of the seller to bind himself to pay commission on the signature of the agreement as that sale may eventually fall through.

Clause 8.1 prohibits the inclusion of clauses in the sale or lease agreements stipulating that commission is payable on the signature of the agreement whether or not a particular suspensive or resolutive condition in the contract has been fulfilled. There may, however, be instances where payment of commission in such circumstance can be justified, for example when there is an extraordinarily long period between the date of signature of the agreement and the date specified for the fulfilment of Suspensive condition.

If the party responsible for payment of commission agrees to pay commission before fulfilment of Suspensive conditions, a written document separate from the agreement of sale or lease must be drawn up. Such document must set out the implications and financial risks, for the party concerned of such payment. The document must then be signed by such a party and the estate agent in question.

Code:

8.2       convey to his client or any other party to a completed proposed transaction in which he acted or acts as an estate agent, that he is precluded by law from charging less than a particular commission or fee, or that such commission or fee is prescribed by law, the board or any institute or association of estate agents or any other body;

Discussion:

The purpose of this clause is to avoid misrepresentation on the part of an estate agent regarding the amount of commission that he may charge.

There is no prescribed commission tariff for estate agents although the Institute of Estate Agents of South Africa has a recommended tariff for its members.

The Code does not prohibit an estate agent from advertising his commission rate. It is not; however, permissible to advertise that the estate agent guarantees to undercut any other estate agent’s rate or that his tariff is lower than that of his competitor’s. To do so would be misleading since an estate agent’s commission is usually linked to the services offered by him.

Code:

8.3       introduce a prospective purchaser or lessee to any immovable property or the seller or lessor thereof, if he knows, or has reason to believe, that such person has already been introduced to such property or the seller or lessor thereof by another estate agent and that there is a likelihood that his client may have to pay commission to such other, or more than one, an estate agent should the sale or lease be concluded through his intervention: Provided that the foregoing shall not apply if the estate agent has informed his client of such likelihood and obtained written consent to introduce such party to the property or the seller or lessor thereof;

Discussion:

The purpose of this clause is to avoid double commission disputes.

Code:

8.4       include, or cause to be included, or accept the benefit of, any clause in a mandate or a contract of sale or lease of immovable property, providing for payment to him by the seller or lessor of immovable property, of any remuneration, commission, benefit or gain arising from or connected with a contract of sale or lease, regardless of the fact whether the purchaser or lessee is financially able to fulfil his obligations in terms of the said contract: Provided that the foregoing shall not apply if

(aa)      good cause exists; and

(bb)     the seller or lessor has, before his signature of the contract or mandate (as the case may be) consented in writing in a document executed independently of the said mandate and contract, to such payment; and

(cc)      such document contains an explanation of the implications and financial risks for the seller or lessor of such payment; and

(dd)     such document is signed by both the estate agent and the seller or lessor.

Discussion:

A common law requirement for the earning of commission on a sale is that an estate agent must introduce a purchaser who is legally and financially able to implement the transaction. A commission clause in a sale agreement proving that the seller is to pay a commission whether or not the purchaser is financially able to implement the sale is obviously not in the seller’s interest and the inclusion of such a clause is prohibited by clause 8.4 of the code of conduct.

In the unlikely event that a seller is willing to pay the commission whether or not the purchaser is financially able to fulfil his contractual obligations, a separate document must be prepared. This document must contain an explanation of the implications and financial risks for the seller arising from such payment and must be signed by both the estate agent and the seller.

Agreements of sale concluded subject to the condition that the purchaser is to obtain a loan on or before a certain date, often proved that should the purchaser fail to apply for the loan and provide false information in his application solely to avoid fulfilment of the suspensive condition, he (the purchaser) will become liable for payment of a commission. The inclusion of such a clause is not prohibited by clause 8.4

Code:

8.5       include, or cause to be included, or accept the benefit of, any clause in a contract of sale or lease of the immovable property negotiated by him, entitling him to deduct from any money entrusted to him in terms of the contract, any remuneration, commission, benefit or gain arising from or connected with such contract: Provided that the foregoing shall not be so construed to prohibit an estate agent from making such deduction when such money is actually paid over by him to the party entitled thereto and such party is in terms of the said contract liable for the payment of such remuneration, commission, benefit or gain.

Discussion:

This clause prohibits an estate agent from including provisions in agreements that entitle him to deduct his commission from deposits held by him in trust. Such a deduction can only be made when the deposit is actually paid over by the estate agent to the party entitled thereto and provided that such party is in terms of the relevant agreement responsible for the payment of a commission. For example, in the case of a sale where the seller is liable to pay commission the estate agent may not deduct his commission from the purchaser’s deposit held by the estate agent in trust.

The commission may, however, be deducted when the deposit is paid over to the seller or his representative. (If the agreement of sale authorizes the conveyancer appointed by the seller to receive the purchase price on behalf of the seller, the conveyancer acts as the seller’s representative: accordingly, the estate agent will be entitled to deduct commission when handing over the deposit to the conveyancer.)

Clause 8.5 must be read in conjunction with clause 9.4 of the code which is dealt with below. The latter clause regulates the inclusion of a clause in a sale providing for the payment of a deposit to the seller before registration of transfer of the property in the purchaser’s name. Clause 8.5 and 9.4 read together mean that, as a general rule, an estate agent may only pay out a deposit to a seller (or his representative) on the registration of transfer of the property sold and only then may the estate agent deduct his commission from the deposit.

Clause 9.4 does, however, provide that if good cause exists the purchaser can consent to payment of the deposit to the seller before registration of the transfer, in which event such consent must be embodied in a separate document containing an explanation of the implications and financial risks of such payment for the purchaser. The seller, the purchaser and the estate agent in question must sign the relevant document.

Once the document has been signed, the estate agent is entitled to pay the deposit to the seller before registration of transfer and may then deduct his commission from such payment.

The Code does not prohibit an estate agent who has performed his mandate from demanding immediate payment of commission from the party responsible for such payment. This can be done at any stage after fulfilment of the mandate, even before registration of transfer. Moreover, although the commission is usually payable by a seller the Code does not prohibit the inclusion of a clause in an agreement of sale providing that commission is payable by the purchaser. It does however prohibit an estate agent from deducting his commission from the purchaser’s deposit held in trust by him.

Is this provision of the Code contravened where an agreement of sale provides:

  • that the agent must pay the stipulated deposit over to an attorney;
  • the attorney is in turn instructed by the parties to deduct the estate agent’s commission from the deposit and to pay such commission to the estate agent after fulfilment of all suspensive conditions (i.e. before registration of transfer)?

While the inclusion of such a clause is not specifically prohibited by the Code an estate agent must remember that he is obliged in terms of clause 6.2.1 of the Code to explain to the purchaser, before him signing the agreement, the meaning and the consequences of the clause. If the estate agent is unable to explain the clause, he must refer the purchaser to a person who can do so.

The purchaser’s attention must be specifically drawn to the implications of the relevant instruction contained in the agreement of sale. It must be explained to the purchaser that if he cancels the agreement of sale as a result of non-performance by the seller of his obligations, the purchaser will not be entitled to a full refund of the deposit entrusted to the attorney but only to a refund after the deduction of the agent’s commission.

Compare listings

Compare