By John Turnbull, Partner and Isobel Feben, Lawyer
Many of you will now have seen the newspaper articles and internet feeds regarding Mrs Sutherland and her dispute with Globe Real Estate (“Globe”). In case you’ve missed it, the case essentially involved a 93 year old vendor who was required to pay an incentive commission (or “kicker”) to the agent of 50% of any sale proceeds achieved over and above $1.25mil. Mrs Sutherland’s home sold for $1,385,000, and the agent claimed entitlement to a commission of $81,000.
Many of the news articles suggest that Globe lost the case on the basis of Mrs Sutherland’s age and/or the excessive nature of the incentive commission (some headings include: “Victorian 93-year-old swindled by real estate agent’s fine print” and “elderly woman slugged $81,000 in ‘excessive’ tiered commission arrangement”).
However, Globe did not lose because of:
- the age, fragility or mental state of Mrs Sutherland;
- Mrs Sutherland claim that she didn’t understand the Authority;
- the arguably excessive kicker; or
- any illegality around the incentive commission used.
The basis of Mrs Sutherland’s claim initially was that the agent took unconscientious advantage of her, given her age and that she had a cognitive impairment. However, during the proceedings, the County Court decision in Advisory Service Pty Ltd (Ray White St Albans) (“Ray White Decision”) was handed down. Mrs Sutherland then amended her claim to argue that the REIV Authority which was used by Globe didn’t contain the required rebate statement and was therefore invalid. After Mrs Sutherland amended her claim, Globe agreed that they weren’t entitled to a commission and did not continue to defend the proceedings. The Court’s decision which was recently handed down addressed the issue of interest on Mrs Sutherland’s claim and legal costs.
The Court therefore was not required to decide upon whether Globe was disentitled to commission on the basis of Mrs Sutherland’s age and condition, or because the agent took unfair advantage of Mrs Sutherland. The judge did make the following comment though, which may indicate the direction the Court would go if a similar matter were to come before it again:
“It no doubt seemed self-evident that no rational person in the position of the plaintiff in this case with a residential property in Beaumaris would, if properly in possession of their senses, enter into a commission agreement of that kind”.
In our view, incentive based commissions can be legally claimed, however they need to be carefully addressed in the authority. The REIV authority is not well suited to incentive based commissions, and we have seen countless examples of incorrectly drafted incentive commission structures (which disentitle the agent to commission).
If you do use incentive based commissions, we encourage you to think about how the arrangement look if it ever came before the media. There are no black and white rules around what is fair and what is excessive, however as a general comment, the incentive threshold should be above the estimated selling price for the property (so, for example, if the estimated selling price is $1mil to $1.1mil, then perhaps the threshold for the next tier should be $1.15mil). There was no commentary in Mrs Sutherland’s case as to what her property was worth.
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