Publications

Protecting Commission and Goodwill
Author: Col Myers
Date: October,2009

PROTECTING COMMISSION AND GOODWILL

It is important that all managers understand the importance of their Agency Agreements with individual owners and their obligations to disclose rebates or commissions.

NO ENTITLEMENT TO COMMISSION OR EXPENSES WITHOUT A WRITTEN AGENCY AGREEMENT

The Property, Stock and Business Agents Act 2002 states that a Licensee (which includes an On-Site Residential Property Manager) is not entitled to any commission or expenses from an owner for services performed by the Licensee unless:-

(a) the services were performed pursuant to an agreement in writing (an Agency Agreement or Appointment to Let) signed by or on behalf of the owner and Licensee, and

(b) the Agency Agreement complies with the applicable requirements of the Regulations, and

(c) a copy of the Agency Agreement signed by the Licensee was served by the Licensee on the owner within 48 hours after the agreement was signed by or on behalf of the owner.

The Act provides that a person may be served by facsimile.

AGENCY AGREEMENT MUST DISCLOSE REBATES, DISCOUNTS AND COMMISSIONS

The Act further provides that a Licensee is not entitled to receive any expenses from an owner unless the Agency Agreement contains a statement:-

(a) identifying the source of all rebates, discounts or commissions that the Licensee will or may recover in respect of those expenses, and

(b) specifying the estimated amount of those rebates, discounts or commissions.

REFERRALS

Schedule 1 of the Property, Stock and Business Agents Regulations specifically states that a licensee who refers an owner to a service provider (e.g. a tradesman) must not falsely represent to the owner that the tradesman is independent of the licensee unless:-

(a) the licensee receives no rebate, discount, commission or benefit for referring the owner to the tradesman, and

(b) the licensee does not have a personal or commercial relationship with the tradesman.

The following are examples of a “personal or commercial” relationship:-

(a) a family relationship;
(b) a business relationship;
(c) a fiduciary relationship;
(d) a relationship where one person is accustomed or obliged to act in accordance with the directions, instructions or wishes of the other person.

If the tradesman is not independent of the licensee, the agent must disclose to the owner:-

(a) the nature of any relationship between the licensee and the tradesman;

(b) the nature and value of any rebate, discount, commission or benefit the licensee may receive or expects to receive by referring the owner to the tradesman.

SUMMARY

Your Agency Agreements with owners are critical because:-

1. you can’t charge an owner for commission or expenses unless you have a written Agency Agreement that complies with the Regulations;
2. you must serve a copy of the written agreement on the owner within 48 hours after the agreement was signed by the owner;
3. when you sell your management rights, your buyer is paying for the goodwill of your letting business. Your goodwill starts and ends with having enforceable written Agency Agreements with your owners.
4. if you are a purchaser of management rights, you should ensure that you obtain fresh Agency Agreements with your individual owners as soon as possible following settlement as the Act contemplates an Agency Agreement being signed by and on behalf of the owner and the Licensee (not the previous Licensee!).