Barry Plant Real Estate – “Gazumping” Clause

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

A “gazumping” clause is a special condition which is inserted into a purchaser’s offer by an estate agent. Effectively, it allows a latecomer to the sale to submit a “bid” to the vendor. If the latecomer’s bid is on “more favourable terms” than those in the existing contract, the vendor can invite the purchaser to match the bid. If the purchaser fails to match the bid, the vendor can cancel the contract.

As with other private auction situations, it is possible for a contrived offer to be put to the purchaser, with a view to having the purchaser increase the price or alter the terms of the contract. Such conduct would probably constitute acriminal deception.

The first estate agent to adopt the “gazumping” clause was Ian Reid who became known for having his own Gazumping Clause and his Finance Clause inserted into purchasers’ offers. We exposed the “Ian Reid Strategy” some time ago, but we have not seen it adopted by other estate agents until now.

I contacted Barry Plant to find out why Barry Plant Real Estate had resorted to the use of a “gazumping” clause.

Here is what I wrote Barry Plant:

“Dear Sir,

I seek your explanation for the use by your organisation of what I would call “The Barry Plant Gazumping Clause”.  I am aware of two separate instances where Barry Plant Real Estate agencies have inserted the clause into real estate contracts.  In one case the result was devastating for the purchaser victim, and undoubtedly caused stress and concern for the vendor victim.

Please advise:

· Whether you have knowledge of the use of “gazumping clauses” by your sales representatives;
· The purpose, as you understand it, of “gazumping clauses”;
· The basis on which an estate agent drafts and advises on the use of a “gazumping clause”;
· Your opinion as to the ethics of the use of “gazumping clauses”; and
· Whether your sales representatives will continue in the use of “gazumping clauses”.

The “gazumping clause” used by Barry Plant Real Estate Emerald is reproduced as follows:

1. “This contract note is subject to and conditional upon the purchasers entering into an unconditional contract of sale for the purchasers property at….by the 31st of April 2008, which provides for settlement to take place 30 days from the purchasers property becoming unconditionally sold.

2. It is hereby agreed between both the vendor and the purchasers that the vendor’s property namely…..is to remain on the market.  In the event the vendors receive an alternative offer which meets or exceeds the agreed price on this contract or has conditions which are more satisfactory than the present offer, then the vendors will give to the purchasers three clear business days notice in writing to require the purchasers to waive the condition precedent and match or better the second offer.  Should the purchasers no elect to waive condition 1. and match or better the second offer, then the vendors without further notice cancel this contract forthwith.  The vendors retain the right to continue advertising the property “FOR SALE” until such time as condition 1. is waived.’ “

Here is how Barry Plant responded:

“Dear Peter,  in response to your queries, we do not consider this to be a “gazumping clause”. It is a special condition placed in a contract and agreed to by a willing purchaser and a willing vendor. Both parties obviously believe that there is both an opportunity as well as a form of protection for them in agreeing to this contract.  We believe that our agent has acted upon the instructions of both the potential purchaser and the instructing vendor.  Regards Barry Plant.”

It is common for estate agents to claim that they were acting on instructions, but invariably the instructions are given after the estate agent has provided the advice on which the instructions are based. In addition, it is the estate agent who has most to gain because the estate agent wins a commission no matter who ends up buying the property. I put this to Barry Plant:

“Dear Barry,

The term “gazumping” is used to refer to a situation where a property, once sold to a purchaser, is then sold to someone else.  Your clause facilitates this, and so I believe that it is appropriate to refer to the clause as a “gazumping clause”.

I note that you say “It is a special condition placed in a contract and agreed to by a willing purchaser and a willing vendor.”  Barry, as you and I both know, estate agents are prohibited by law from drafting contract conditions.  Further, you are aware that an estate agent is not permitted to offer legal advice to either the purchaser or the vendor.  I also make the observation that no lawyer or conveyancer who is qualified to offer legal advice would ever advise a vendor or purchaser client to insert a “gazumping clause” into a contract.

Barry, you say, “Both parties obviously believe that there is both an opportunity as well as a form of protection for them…” but this belief comes about because the estate agent has come up with the idea of the “gazumping clause”, the estate agent has explained the supposed benefits of the “gazumping clause” to the parties, and the estate agent has advised the parties that the “gazumping clause” should be used.  I put it to you Barry that the “gazumping clause” is of more benefit to the estate agent than to either of the parties, because it allows the estate agent to close a sale (and secure a commission), regardless of the outcome.  How do you respond to this?

Finally, I put it to you Barry that an estate agent commits a criminal offence, punishable by 2 years’ imprisonment when he or she performs legal work in terms of drafting a “gazumping clause”, and advising vendors and purchasers as to the legal nature and effect of the “gazumping clause”.  How do you respond to this?”

Barry Plant chose not respond to the matters put to him in my second email.

In my opinion the Barry Plant “gazumping” clause should be viewed as an anti-consumer device, the purpose of which is to trick vendors and purchasers alike in order to secure a sale for the estate agent who uses it. I was recently asked to represent a purchaser who took the advice of a Barry Plant Real Estate agent and allowed the “gazumping” clause to be inserted into her offer to buy. The result was a gut-wrenching ordeal for the purchaser, and an equally miserable experience for the vendor. There will be more on this in a future posting.

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