Now, which of you really sold my house?

Moving house, as many people know, can be both a lengthy and costly process. High in most vendors' minds is the considerable expense they will have to pay by way of commission to the estate agent who successfully markets their property, often set at a rate of 2 to 3 percent of the eventual sale price. With house prices as they are, these are no small sums and unfortunately, when multiple agents are employed by the vendor, this can often lead to more than one agent claiming entitlement to the fee and the parties ending up before the courts.

This scenario was played out in the very recent case of Foxtons Ltd v Pelkey Bicknell & Anor in the Court of Appeal. Foxtons had been employed as sole agents on the sale of a house and in that time had shown the property to a potential buyer. This did not initially result in a sale and the vendor (Mrs Bicknell) subsequently hired other agents to act alongside Foxtons. At a later date, another estate agent completed the sale with the individual who Foxtons had already introduced to the property. Mrs Bicknell paid commission to this agent and Foxtons sued her, claiming entitlement to it.

Foxtons' terms of business reflected the provisions of the Estate Agents (Provision of Information) Regulations 1991, providing that, in the event of a sole agency relationship:

"you will be liable to pay remuneration to us, in addition to any other costs or charges agreed, if at any time unconditional contracts are exchanged:-

with a purchaser introduced by us during the period of our sole agency or with whom we have had negotiations about the property during that period; or with a purchaser introduced by or offering via another agent during that period."

In the event of a multiple agency, Foxtons' terms similarly read:

"you will be liable to pay remuneration to us, in addition to any other costs or charges agreed, if at any time unconditional contracts are exchanged:-

with a purchaser introduced by us; or with a purchaser to whose attention we brought the availability of the property."

The difficulty for the courts rested in interpreting various aspects of Foxtons' terms and, upon a closer look at the language, there are certainly conflicting interpretations that can be rationally argued, in particular the meaning given to a "purchaser introduced by us".

Foxtons argued, and the court at first instance agreed, that it was sufficient for Foxtons to have introduced a person who at some time in the future became a purchaser, even if Foxtons was not the effective cause of the sale. The alternative reading, argued by Mrs Bicknell, is that the expression should be read as "a person who becomes a purchaser as a result of our introduction".

The Court of Appeal agreed with Mrs Bicknell's interpretation. It was principally justified on the basis that Foxtons was required to have introduced the purchaser to the purchase and not merely the property. In this case, in the court's view "there was nothing to show that the offer on the house was based on Foxtons' earlier activities." In addition, it was judged that Foxtons' interpretation conflicted with the normal principle that commission should be owed on the basis of a successful transaction and must normally be the effective cause of the transaction. It was decided that Foxtons' interpretation disregarded this requirement and the Court questioned the practicalities of Foxtons' explanation. In fact Lord Neuberger, responsible for the leading judgment in the case, made a point of mentioning that it may create an unconvincing situation where Foxtons had shown a person around a property two years before that person buys it through a competitor, yet Foxtons in theory could still claim that a commission is due under its terms of business. In the court's mind, Foxtons' argument would inevitably lead to significantly more situations where more than one commission would be payable by the seller. On this basis, the Judge sided with the vendor and left Foxtons without any fee.

There is no doubt Foxtons, along with every other estate agent, will be casting their eyes over every word of the judgment and it may still lead to an appeal to the House of Lords. However, for now at least, estate agents will be acutely aware of the need to introduce any potential purchaser to the actual purchase and not just the property. The current slowdown in the housing market will make it even more important for estate agents not only to sharpen their sales pitches but also, and more significantly, to show a clear link between any purchaser's offer and their introduction to the property.