Real Estate Regulators – No Fault With Real Estate Agent’s Caveat Clause

Posted on July 28, 2011 by | 6 Comments

Tim O'Dwyer M.A., LL.B OPINION
by Tim O’Dwyer M.A., LL.B
Solicitor
Consumer Advocate
watchdog@argonautlegal.com.au

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Not only had the buyers purported to “charge” the property with the seller’s agent’s commission liability while consequently consenting to the agent’s lodgement of an instrument-stopping caveat over the title, but also the seller had “irrevocably” authorized and directed the buyers’ solicitor to pay this commission at settlement.Conveyancing Consumer Alert - Beware of the Sneaky Stamp in Estate Agent Contracts!

After reading Peter Mericka’s excellent blog post, Conveyancing Consumer alert- Beware of the Sneaky Stamp, I was reminded of a fairly recent, not quite as sensational but equally disturbing experience I had involving a real estate agent’s “caveat clause” here in Queensland.   But first I will try to explain simply what a caveat is and does.  Essentially a caveat is a powerful legal document which, once lodged with the Registrar of Titles in respect of a particular property, has the immediate effect of preventing the registration on the title to that property  any legal instrument (such as a transfer from seller to buyer).  A lodged caveat will continue by law to prevent the registration of instruments until it lapses or is cancelled, rejected, removed or withdrawn.  Hence a caveat lodged immediately before or shortly after the settlement date of a property sale will cause chaos for all parties to the contract – as well as to their solicitors and lenders as Peter Mericka has reported.

Back to my real estate agent’s “Caveat clause” story:  I was acting for a single lady selling a Gold Coast property.  Like most agent- trusting real estate consumers she had signed the sale contract (prepared by her First National agent) without first seeking any legal advice.  When the fully-signed contract landed on my desk, I was horrified to see in special condition 3.4 of the contract these words:

Upon signing this contract … both parties hereby charge the subject property and consent to the agent lodging a caveat over the property, pending receipt by the agent of payment of the commission owing.

This obnoxious “condition”, the likes of which I had never seen in a real estate contract in my 30-plus years of legal practice, was preceded by special condition 3.4 – a no less obnoxious but quite common agent-protective proviso:

If at settlement the Agent … does not, as the Deposit Holder, hold sufficient money to satisfy payment of the commission in full, the Seller irrevocably authorizes and directs the Seller’s Solicitor, the Buyer and the Buyer’s solicitor to pay the commission or the balance of it to the Agent at settlement out of the proceedings (sic) of the sale.

Just pause a minute, dear readers, to reflect on this bizarre and extraordinary agent-orchestrated scenario:  Not only had the buyers purported to “charge” the property with the seller’s agent’s commission liability while consequently consenting to the agent’s lodgement of an instrument-stopping caveat over the title, but also the seller had “irrevocably” authorized and directed the buyers’ solicitor to pay this commission at settlement. 

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6 Comments

  • http:// says:

    Unless the client wants to decide not to pay, there isn’t a problem. Of coarse a lawyer would want the agent to use the normal channels to take a vendor to court. A lawyer who would charge a vendor per hour to represent them! If you don’t want to pay don’t sign! As real estate transactions are common, our courts are left free to deal with other matters. You have a vested interest with these comments.

  • Congratulations on your article and your tenacity. Pity it was not properly rewarded.
    Haven’t they heard about fiduciary duties? The legal obligation to put the interests of one’s client before all others, including one’s own interests?
    From reading your excellent articles over the years, Tim, I know that Qld agents may be special. [I am trying to remove any parochialism on your part, here!] But to exempt them from their fiduciary duties is going too far.
    I would like a court to be able to comment on the conduct and the clauses: a different result should follow.

  • Bc, I assume that you’re a real estate agent – tell me if I’m wrong.  Remember, to work effectively the sneaky stamp has to remain “sneaky” because no well advised consumer would ever allow it to be applied to their contract.

    As I stated in the original posting about the “sneaky stamp”, its power is not in its legal consequences but in its use as a bullying tool.

    But there are other consequences to its use.  As all real estate agents know, the commission becomes payable not when the property is sold, but when the real estate agent receives an offer that is within the range stated on the agency agreement (which may have been hit with the sneaky stamp).  If the vendor rejects the offer the real estate agent may lodge a caveat over the property immediately.

    Now extend the logic of the sneaky stamp beyond caveats and consider the Personal Property Securities Act.  It won’t be long before sneaky stamps are based on the PPSA!

  • http:// says:

    Geoffrey’s comment is spot on.

    If the agent had comprehended the nature of the clause and consequences that could arise from it, such a clause would not have been implemented in the first place, and that a magistrate or judge would acknowledged that the agent neglected their fiduciary duty to the client.

    Fiduciary duty is a tort, which means you can be sued in a court of law, so Fair Trading needs to prosecute for this serious breach of the legislation, rather than be satisfied with issuing a puny penalty.

  • http:// says:

    Thank you for your comments, Geoffrey.

    I feel obliged to inform our readers that you are a South Australian, but God bless your local law-makers again for outlawing agents’ caveats!

  • If the agent had comprehended the nature of the clause and consequences that could arise from it, such a clause would not have been implemented in the first place, and that a magistrate or judge would acknowledged that the agent neglected their fiduciary duty to the client.

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