The rule of thumb has always assumed to be that an agent is entitled to commission on a transaction provided the agent's services were the "effective cause" of the transaction. However, this principle has suffered a body blow in the case of Estafnous v London & Leeds Business Centres Limited (2009).
In this case the High Court considered the meaning of an estate agency agreement (agreement) which provided for a payment of £2 million commission to the agent when the buyer completed a purchase of "the property".
The transaction was restructured from a straightforward property sale to a share sale.
The High Court held that, although the agent had "introduced" the buyer within the meaning of the agreement, no commission was due to the agent as the share purchase was not a purchase of "the property". The Judge appreciated that there were reasons not to favour a construction that would enable a party to avoid paying commission by structuring transactions in a different way but he highlighted that it is not an uncommon experience for parties to a contract to discover they have not actually made provision to cover all events.
Estate agents should take note of this case and make sure that their contracts are worded so that their commission entitlement is not affected by how the deal is structured.