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Appeal court decision could put estate agents’ commission at risk

30 November 2011

Now and again a buyer will acquire land or property by buying the shares of the company that owns it, rather than buying the land itself.

One reason buyers may do this is to take advantage of the sizeable savings on stamp duty.

However, estate agents need to take account of the possibility that such arrangements could undermine their commission agreements.

In the recent case of Estafnous v London & Leeds Business Centres Ltd [2011], an agent lost out on commission of around £2 million after such a transaction took place.

It had been agreed that if Mr Estafnous introduced a potential buyer for a particular property, LLBC would pay him commission of around of £2million when  ‘a purchase of the property’ was completed.

Estafnous did, indeed, introduce a potential buyer, a Mr Kapoor, but after a period of negotiations, the plan changed. Instead of buying the property itself, Mr Kapoor would now purchase the company that owned a lease on the property.  

When the share sale completed, Mr Estafnous went ahead and claimed his  £2 million commission.  LLBC refused to pay, arguing that since the property had not been sold, Estafnous was not entitled to anything.

The question for the Court of Appeal was whether the commission agreement applied only to a sale of the property (ie a legal transfer of the long leasehold interest in the property), or whether it also covered the sale of the company.

Estafnous accepted that the agreement only provided expressly for commission on a sale of the property.  However he argued that it should cover a share sale since the end result was the same, in that Kapoor acquired control of the property.

The Court of Appeal disagreed. The agreement was clear, they said, and there was no room for additional terms to be implied. If the parties to the agreement intended something to happen, then it should have been clearly stated within the agreement. 

Protect your commission

As far as estate agents are concerned, to ensure that entitlement to commission is not put at risk following the decision in this case, we recommend that your standard terms and conditions are reviewed without delay. If you would like assistance with updating these to provide for any changes in the structure of a transaction, please contact any of the lawyers in our commercial property team.

As always, if you need commercial and pragmatic legal advice, we’re here to help so please get in touch.

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Alasdair Garbutt LLB (Hons)
Partner
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Alasdair Garbutt
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