Agent’s commission: City and Atlantic Real Estate CC t/a RE/MAX Living v Smith (7118/2023) [2024] ZAWCHC 426
This case stood out to me due to its similarity with a personal experience from my twenties. At the time, the flat I shared with a friend was put up for sale. My flatmate’s girlfriend, a junior estate agent, approached the owner to request permission to market the property. She was granted the opportunity and successfully identified interested buyers. However, a more senior agent conducted the viewings and ultimately completed the sale. Despite her pivotal role in introducing the eventual purchaser, my flatmate’s girlfriend received no share of the commission.
In a similar vein, the case of City and Atlantic Real Estate CC t/a RE/MAX Living v Smith (“City and Atlantic Real Estate CC”)1 presents a dispute over entitlement to estate agent commission following the sale of a property. On 1 September 2021, Michael and Alison Smith (“the Smiths”) entered into a joint mandate with both RE/MAX Living and Kapstadt to market and sell their property. The mandate stipulated that RE/MAX Living would be entitled to a 3.5% commission if the property was sold to a purchaser introduced by them during the mandate period, which lasted until 30 April 2022.
RE/MAX Living introduced James Pears, a potential buyer, to the property in November 2021, which was within the mandate period. Mr Pears viewed the property multiple times, although he initially did not make an offer that met the Smiths’ asking price. By March 2022, Mr Pears withdrew his offer, and the Smiths received a higher offer from an American purchaser introduced to them by Kapstadt. However, this sale fell through in February 2023 due to the purchaser’s inability to proceed with the transaction.
In February 2023, the Smiths returned to Mr Pears and accepted his original offer of R24 million. Mrs Smith subsequently informed RE/MAX Living that, while they had introduced Mr Pears, Kapstadt had facilitated the final negotiations and the signing of the sale agreement. The commission of R966,000, inclusive of VAT, was thus being held in a trust account pending the resolution of the dispute.
RE/MAX Living, the Applicant, sought the commission for facilitating the sale, while Kapstadt International Properties CC, the Third Respondent, claimed entitlement to the commission for its role in finalising the sale. The key issues in dispute were as follows:
- Whether RE/MAX Living performed per the joint mandate, specifically concerning the introduction of Mr Pears to the property.
- Whether RE/MAX Living was the “effective cause” of the sale, entitling them to the commission, or if Kapstadt, which negotiated the final agreement, should receive the commission.
Author’s Analysis
The judgment in City and Atlantic Real Estate CC offers a comprehensive analysis of entitlement of sales commission in estate agency disputes. The matter centres on determining the “effective cause” of the property sale, which ultimately determines the rightful claimant for the commission. This case underscores fundamental principles in property law, particularly the interpretation of estate agency contracts and the application of the “effective cause” rule.
Parker AJ appropriately referenced and applied the principle that an estate agent must prove they were the “effective cause” of a sale to claim commission. This principle is well-established in South African case law, particularly in decisions such as Wakefields Real Estate (Pty) Ltd v Attree2 and Basil Elk Estates (Pty) Ltd v Curzon,3 which emphasise the necessity for the agent to introduce the purchaser to the property and to have been mandated at the relevant time. The court’s reliance on the “but-for” test, i.e., whether the sale would have occurred but for the agent’s involvement, is sound and consistent with prior judgments. This test ensures that the estate agent who plays a dominant role in bringing about the sale is entitled to the commission, irrespective of the involvement of other agents in finalising the deal.
A key issue in City and Atlantic Real Estate CC is the interpretation of the joint mandate signed between RE/MAX Living and the Smiths. The mandate specified that RE/MAX Living would be entitled to a commission if it introduced the buyer during the mandate period, even if another agent concluded the sale. The court found that RE/MAX Living fulfilled these conditions, as Mr Pears was introduced to the property by RE/MAX Living within the mandate period, and their involvement in the sale was decisive.
While the interpretation of the mandate is seemingly straightforward, it is worth questioning whether the absence of a specific clause regarding post-mandate deals, for instance, an explicit provision addressing the post-mandate period, leaves room for disputes of this nature. The court assumed that the language of the mandate was clear and unambiguous. However, the practical implications of a sale occurring months after the mandate expired raise concerns regarding how such agreements are interpreted in practice. For instance, should an agent’s entitlement to commission for a sale occurring after the mandate expires be more explicitly addressed in the mandate to prevent future ambiguity?
The City and Atlantic Real Estate CC judgment suggests that there was no genuine dispute of facts requiring oral evidence, noting that the facts regarding Mr Pears’ multiple viewings and RE/MAX Living’s involvement in the sale were undisputed. While the court’s reliance on affidavit evidence is reasonable in this context, it highlights a broader concern regarding the use of motion proceedings to resolve factual disputes in commission cases.
Kapstadt contended that a genuine dispute of fact existed, particularly regarding the timing of the property’s listing and RE/MAX Living’s continued marketing efforts. Kapstadt’s claim that the property was no longer actively listed on RE/MAX Living’s website and that they took over negotiations after the mandate expired suggests that a fuller factual inquiry may have been beneficial. Parker AJ dismissed this argument, asserting that it could be adequately resolved without oral evidence. However, this decision is not without risks, particularly in complex agency relationships involving multiple parties. A trial, with the opportunity for cross-examination and the submission of complete evidence, might have been a more appropriate forum for resolving the issues raised by Kapstadt.
Moreover, the court’s dismissal of Kapstadt’s counterclaim, although well-founded, could have benefitted from a deeper exploration of the procedural fairness of resolving the matter via motion proceedings, given the potential factual disputes and the complexity of the indemnity issue. The procedural choice to resolve the matter by motion rather than action may have disadvantaged Kapstadt, as they could not fully engage in a trial process.
A noteworthy aspect of the judgment is the court’s suggestion that this case was better suited for alternative dispute resolution (ADR), such as mediation, rather than litigation. The court contended that mediation could have resolved the dispute more efficiently and at an earlier stage, given the specific nature of the issues in dispute. However, there is no indication that the parties attempted mediation before resorting to litigation.
In real estate commission disputes, where relationships between agents and principals can be contentious and negotiations often take months, ADR could indeed provide a more effective means of resolution. The court’s endorsement of mediation highlights an important consideration for legal practitioners and clients alike: mediation can be a more cost-effective and less adversarial option in disputes that hinge on factual interpretations rather than legal principles. Had the parties engaged in mediation, the dispute could have been resolved more amicably, potentially saving significant costs and time.
Conclusion
The judgment underscores the importance of clear contract language in real estate agency agreements, the challenges posed by indemnity clauses, and the procedural challenges inherent in resolving complex commission disputes through motion proceedings rather than trial. Furthermore, the endorsement of mediation as a means to resolve such disputes, if taken seriously by the parties involved, could have led to a quicker and less costly resolution.
Ultimately, the judgment reinforces the principle of the “effective cause” in commission claims and serves as an important precedent in clarifying the role of agents in property transactions. It makes one wonder if my flatmate’s girlfriend unfairly missed out on a deserved one, considering she was the effective cause of the sale.
You can read the City and Atlantic Real Estate CC judgement here.
Written by Theo Tembo
The Legal Desk 
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