When a Property Sale Collapses, can the Estate Agent Still Claim Commission from the Deposit?

By Tania Abbotts | Director

When a property transaction falls apart because the purchaser breaches the agreement, many people assume the agent simply loses out on commission. That is not always correct.

In practice, one of the first questions that arises after cancellation is whether the estate agent can still claim commission and whether that amount can be taken from the deposit held in trust by the transferring attorney. The answer will usually depend on the wording of the agreement of sale.

In many sale agreements, the commission clause is closely linked to the breach and cancellation provisions. If the agreement says that the agent was the effective cause of the sale, and it also provides that the defaulting party remains liable for commission or damages after cancellation, the agent may still have a claim even though transfer never takes place. South African courts have repeatedly treated the wording of these clauses as important, rather than assuming that commission is payable or not payable in every cancelled sale.

That is where the role of the transferring attorney becomes important. If the purchaser paid a deposit which is being held in trust, an agent may try to claim that commission should be paid from those funds. Whether that can happen is not simply an administrative question. It depends on who is legally entitled to the money, what the agreement authorises, whether the cancellation was valid and whether the conveyancer has a proper mandate or legal basis to release the funds in that way.

This issue affects more than just estate agents. Sellers and purchasers should also pay close attention, because a poorly drafted agreement can leave room for dispute at exactly the point when a transaction is already under strain. A purchaser in breach may face more than the loss of the property. Depending on the contract, that purchaser may also face a claim for wasted costs, damages, or commission. Equally, a seller cannot always assume that the deposit will simply be returned or retained without challenge.

A further point is that parties are generally bound by what they sign. The old principle of caveat subscriptor still matters in South African contract law. In simple terms, if you sign an agreement, you are usually taken to have accepted its terms, whether or not you read every clause carefully. That is one more reason why the breach, commission and cancellation clauses in an agreement of sale should never be treated as boilerplate.

Practical implications

For agents – do not assume that commission disappears the moment a sale is cancelled. Check the agreement carefully to see whether the clause protects your position where the purchaser is the defaulting party.

For sellers and purchasers, the lesson is just as important. Before signing, make sure you understand exactly what the agreement says about breach, cancellation, forfeiture of the deposit and liability for commission.

Property transactions often become contentious only once something has gone wrong. That is why careful drafting at the outset matters so much. A well-drafted agreement can make the difference between a manageable outcome and a dispute over who gets paid from the deposit after the deal has already failed.

If you are unsure what your agreement of sale provides for in the event of purchaser breach and cancellation, it is worth having the document checked before you sign or before any trust funds are released.