Conveyancing Consumer Alert - Beware of the Sneaky Stamp!

Published 14 July 11 09:04 AM | Peter Mericka 

OPINION
by Peter Mericka B.A., LL.B
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd

Real estate agents have no automatic right to lodge a caveat over a client's property to secure the payment of commission. So some cunning real estate agents are adding a clause to the agency contract by which the client gives the real estate agent permission to lodge a caveat. If a real estate agent adds a caveat clause, the client may be able to argue that the conduct of the real estate agent is misleading and deceptive. Even more so if the clause is inserted into the contract in a manner that makes it downright sneaky!

Bell Real Estate Belgrave is a real estate agency in the Dandenong Ranges, east of Melbourne. My firm was completing the conveyancing for a vendor client who had been a long-standing client of Bell Real Estate, and who had sold his property through that agency. He had always paid his accounts on time and without dispute, and there was never any suggestion that he would not pay Bell Real Estate their commission on this occasion. Thus, my client had a history of paying Bell its proper commissions. So, it came as quite a shock when the real estate agent telephoned our office on the Friday and told us that settlement would not be allowed to proceed on the following Monday because Bell Real Estate were concerned about the payment of their commission.

Commission Rage

Commission rage is a common phenomenon in the real estate industry, and it is often the cause of desperate behaviour on the part of real estate agents who fear the loss of commission. It is particularly prevalent in lean times, and the real estate industry is experiencing lean times at present.

Commission rage may well have been a factor in this case, because when Glen Chandler of Bell Real Estate Belgrave telephoned my office to complain that he did not have enough deposit money in the Bell Real Estate trust account to cover the commission, I could sense that he was both anxious and angry. Chandler called our office and asked if the vendor had instructed our firm to draw a cheque for commission payable to Bell Real Estate Belgrave, and when he was told that we had not been instructed to make any of our client's funds payable to his office, he was put through to me. Chandler demanded that we arrange for a cheque to be made payable to Bell Real Estate Belgrave, as he had not been able to get in touch with the vendor and he did not want settlement to proceed before he had been paid.

The staff member handling the file informed me that she had spoken with the purchaser's conveyancer, but it was too late to have the settlement cheques changed. (Ordinarily the cheques delivered at settlement are payable to the vendor's mortgagee and the vendor, not to the real estate agent. It is usual for the real estate agent to deduct commission from the deposit held by the real estate agent, and to invoice the vendor for any amount outstanding. But these are tough times for real estate agents, and this may be encouraging some to grant themselves another privilege.)

It was Friday afternoon, the cheques had been ordered for settlement on the Monday, and the purchaser's lender had confirmed that it was not possible to change them. There was nothing further that could be done to have the cheques changed at such short notice, and so close to settlement.

I explained to Chandler that the commission would have to be paid after settlement had taken place, as the vendor would be relying on the settlement proceeds to pay it. Chandler was furious. He screamed into the phone, demanding that the commission be paid before settlement, otherwise settlement would not proceed at all. I asked Chandler if the vendor had given any indication at all that he couldn't or wouldn't pay the commission, and he admitted that the only reason he was so concerned was that the vendor may change his mind after settlement and decide not to pay. When I suggested to Chandler that perhaps he was being a little unreasonable, he screamed again, adding that Bell Real Estate would lodge a caveat over the vendor's property so that settlement couldn't take place at all.

Knowing that a debt of commission does not give rise to a caveatable interest in a client's property, I explained to Chandler that he was being rather extreme and that he really wasn't entitled to lodge a caveat over his client's property. In any case, lodging a caveat would be self-defeating, ensuring that the commission would not be paid, because the proceeds of the sale were needed for this purpose. In other words, by stopping the settlement, Chandler would also be stopping the payment of his own commission - a rather silly strategy.

Chandler would have none of it. He was in a heightened state of anger and he screamed into the phone again, "No cheque, no settlement, we'll slap a caveat on that place right now, we've got a clause in the sale authority that says we can!"

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Filed under: Commission, caveat, commission rage, bell real estate, unconscionable, glen chandler, trevor bell, armstrong ross, john wallis, consumerr alert

Comments

# Geoffrey Adam said on July 15, 2011 5:33 PM:

An agent's commission is a success fee.  Success only occurs if the contract is completed (ie financial settlement is effected) or potentially where the contract is terminated for breach.  Hence, the agent was not entitled to lodge a caveat because no commission was payable at that time.  The agency agreement may seek to specify an earlier event upon which the commission beomes payable but the courts have always resisted such attempts for obvious reasons and I am unaware of any successful attempts.

However, expenses associated with the sale are often payable notwithstanding that a sale has not been effected: in such case, the expenses (as authorised and actually incurred) may be the subject of a caveat from the time that they become payable unless, as in SA, this is prohibited by statute (see Land & Business (Sale & Conveyancing) Act section 24 in relation to "residential land" only).

# Peter Mericka said on July 15, 2011 10:35 PM:

Hi Geoffrey, I do not see how a caveatable interest arises from a mere indebtedness.  What would the real estate agent state as his/her interest in the land when lodging the caveat to secure the payment of expenses?

# Peter Mericka said on July 18, 2011 11:37 AM:

It seems that Scott Goodman's Goodman Group Conveyancing (the same Scott Goodman who openly promotes the use of referral bribes (see http://reic.com.au/blogs/australian_real_estate_blog/archive/2009/04/04/goodman-group-bribe-payments.aspx) has now introduced and trademarked a caveat strategy called Vendor Power.  See http://www.vendorpower.com.au/ for details.

The difference with Vendor Power is that it is a means by which the vendor of a property becomes entitled to lodge a caveat over a purchaser's property.  Although details are not disclosed, I would expect that it would involve something similar to the "sneaky stamp" being inserted into the purchaser's offer without the purchaser's attention being drawn to it.

It's also interesting to note that these two despicable strategies have been developed and promoted by professionals that consumers are expected to trust - one a lawyer, and the other a conveyancer.

Where is Consumer Affairs Victoria when they're needed?  CAV is working hard behind the scenes to prop up and protect the real estate monopoly that gives rise to this form of conduct.  And forget about the Law Institute of Victoria - it's too busy with a bill of rights and other lofty ideals to be distracted by the declining standards of the legal/conveyancing industry.

# Geoffrey Adam said on July 18, 2011 8:22 PM:

The caveatable interest may be created in relation to expenses payable before settlement by an express term of the agreement which creates a charge against the land to secure those expenses.  

However, a caveatable interest cannot exist for a commission where the commission becomes payable as a consequence of settlement.

# Peter Mericka said on July 18, 2011 8:31 PM:

Sure Geoff, there's no problem if that's what the parties agree to.  But the problem with the sneaky stamp is that it's inserted into the agreement in circumstances where only one party really knows what it's about.

It needs to be sneaky in order to work, because no consumer in their right mind would consent to it.

And then there are the horrible implications that flow from its use.  Remember, it's highly unlikely that a court would uphold the sneaky stamp as valid;  the power of the sneaky stamp is in its use as a bully tool.

# Geoffrey Adam said on July 22, 2011 7:19 PM:

I agree with your last comments, Peter.  

In my view, it is totally unacceptable behaviour for the stamp to be used unless the vendor -

- knows that it is not a usual term of an agreement of that type;

- knows that the term is negotiable;

- knows the effect of the term (which probably requires legal advice); and

- then agrees to it being a term of the agreement.

I suspect that you hold a similar view!

# Peter Mericka said on July 22, 2011 9:33 PM:

I agree with you fully Geoffrey.  But use of the sneaky stamp is similar to the use of bribe payments in return for conveyancing referrals in our industry - the only way these strategies can work effectively is if the party against whom they are used is unaware.

I want to reiterate, however, that the power of the sneaky stamp is not in its effect as a form of security, but in its use as a means of bullying.  It is all about causing upset and panic, and stampeding the parties into doing whatever they can to scrape together the money to pay the real estate agent.  In this particular case the aspect I found most disgusting was the sending of a fax to the purchaser's conveyancer.

# Peter Mericka said on July 27, 2011 10:21 PM:

This posting appeared today on the Law Institute of Victoria LinkedIn Group page at http://www.linkedin.com/groups?home=&gid=1921542&trk=anet_ug_hm

I would expect that the "sneaky stamp" will probably be adapted to exploit the PPSA in due course:

"If you wondered if PPSA would affect Conveyancing and Real Estate then the following might be of use

Conveyancing:

Vendors and purchasers need to proceed with caution when the status of a chattel (whether fixtures or chattels) is in doubt.

Vendors need to be particularly careful about what they represent as forming part of the sale and make sure in advance that any secured creditor will release any security over chattels that may not be fixtures.

Purchasers should require a secured creditor to confirm that it either does not consider the chattels (that are clearly not fixtures) are subject to its security interest or will release its interests in those chattels at settlement.

A check of the PPSR register will help establish if there are any interests over these types of items"

# Victor Man said on July 28, 2011 5:10 PM:

Thanks for making me aware of this new underhanded Real Estate Agent tactic. I will be sure to carefully examine any document presented by a real estate agent for any stamps and take them as additions to the contract terms.

Maybe I should make some stamps up myself with tiny writing on them to add in to any contract I sign, fun for all the family!

# Peter Mericka said on July 28, 2011 5:48 PM:

I am aware of a real estate agency that uses stickers instead of stamps.  Pre-printed, in very small font, and easily stuck onto the contract but without the need for a stamp pad.

Wouldn't be interesting if purchasers had stickers to place OVER the sneaky stamp.

As you say Victor, fun for the whole family - Battle of the Stamps/Stickers!

# Australian Real Estate Blog said on July 28, 2011 5:50 PM:

OPINION by Tim O'Dwyer M.A., LL.B Solicitor Consumer Advocate watchdog@argonautlegal.com.au Not only

# Victor Man said on July 29, 2011 12:29 PM:

If one of the parties of the contract cant remember seeing the stamp, which are clearly additions to the document done after the primary document was prepared, shouldn't such a change need to be initialed to acknowledge it? I know when I have signed contracts with non-standard additions to it, I have been directed to initial the changes so it is clear they were present when the document was signed, and not added surreptitiously later.

# Peter Mericka said on July 29, 2011 12:46 PM:

Victor, any sensible and honest real estate agent would ensure that such an addition is drawn to the attention of the person who is being invited to sign it.  But the concept of the sneaky stamp is that is designed to be sneaky.  Note that neither the real estate agent nor the real estate agent's lawyer took offence at my calling the stamp a "sneaky" stamp.

There is little point in going to the trouble of creating a stamp that is small in size, contains tiny print and is placed sideways on a document if the signatory is to then have their attention drawn to it.  It ceases to be sneaky.

The value in the stamp's being sneaky is that it is unlikely to be noticed, or if it is noticed, unlikely that it will be read in full and understood.

Even if it the real estate agent has the client initial the sneaky stamp, I believe that it will still be sneaky if it remains tiny and difficult to read.