15. April 2019

RED alert - Spring 2019 – 3 von 7 Insights

Unwritten agency agreement: All's well that ends well for agent


Summary: Wells v Devani [2019] UKSC 1106

The Supreme Court has confirmed that an agency agreement for the sale of a property did not need to be in writing and that terms agreed orally would be legally enforceable.

While this does not change the existing law concerning contract formation, the interesting factor here was that a term specifying when the agent's commission would be payable had not been agreed. This would clearly have been a fundamental part of the bargain.

However, even in the absence of this, the validity of the contract was upheld, as the parties clearly had the intention to create legal relations and it was obvious that commission would be payable for the agent's services.

The facts

Mr Wells, a property developer, was introduced to Mr Devani, an estate agent, after having difficulty finding a buyer for his development containing several flats. In a telephone conversation, Mr Devani stated that his fee was 2% of the purchase price.

Nothing was agreed in writing, but Mr Devani introduced a buyer to Mr Wells who bought the entire development. Mr Wells refused to pay Mr Devani his commission following the sale of the development.

The applicable law

A contract is a legally enforceable agreement which gives rise to new rights and duties among those who agree to its terms. A contract is formed when the following key elements coincide:

  • an offer
  • acceptance
  • consideration
  • intention to create legal relations and sufficient certainty of terms.

Generally speaking, a contract does not have to be in writing, as long as the key elements exist between the parties. However, there are exceptions for certain contracts, such as those concerning the sale of land and, subject to rights of relief, estate agency contracts.

Arguments before the Court

At the initial trial, Mr Wells argued that he thought Mr Devani was an investor, despite his profession as an estate agent, and that the agreement was too uncertain to be enforceable.

The judge rejected these submissions and claimed that, in the absence of express agreement, the law would imply terms to give business efficacy to the parties intentions. This implied term would create a binding contract between the parties.

The Court of Appeal overturned this decision by a majority decision, stating that it was necessary for the parties to state an event triggering the payment of commission (such as completion of the sale) in order to create a legally binding contract.

However, the dissenting Judge found that Mr Wells had agreed to "find a purchaser", which was sufficient to create a legally binding contract.

The decision

The Supreme Court unanimously agreed with the dissenting judgment in the Court of Appeal, finding that Mr Wells had clearly intended to enlist the services of Mr Devani as an agent in the usual way.

It was therefore not necessary to imply terms into the oral contract as the actions of the parties were such that a contract was clearly intended to be created.

The Court also considered the application of section 18 of the Estate Agents Act 1979, which states that an agency agreement is only enforceable if it is in writing, unless a Court grants relief from this provision. The Court granted relief, but reduced Mr Devani's fee by 1/3.

Our comment

Parties should be wary when entering into oral agreements. Express, written agreements avoid any uncertainties and are the safest way for parties to ensure that they are fully aware of their rights and obligations.

This case is a useful reminder that the Courts will hold the conduct of the parties in the same regard as the substance of an agreement.

Where services are rendered and a party receives tangible benefit for those services, the Court's decision shows that it will be difficult for the recipient of those services to wriggle out of an obligation to pay for them.

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