Why Estate Agents Should NEVER Handle Contracts
OPINIONby Peter Mericka B.A., LL.B
Real Estate Consumer Advocate
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd
Jellis Craig Real Estate in Balwyn provides us with an excellent example of the type of mess an estate agent can make when he or she becomes involved in legal matters.
In this case the estate agent, Judy Balloch of Jellis Craig Balwyn, was specifically instructed not to meddle in the legal aspects of the sale. However, despite these clear instructions she drafted a special condition on behalf of the purchasers. Having prepared the purchaser’s offer, and then delivering it to herself on behalf of the purchasers, the estate agent then received the offer on behalf of the vendors, and had it executed. The result? A “mule” of a contract that the agent incorrectly declared to be “not binding”!
While the estate agent moved onto her next sale, the parties and their lawyers were left to sort out the mess she had created.
Jellis Craig Balwyn was engaged by our clients to find a purchaser for their property. As most conveyancers and lawyers are aware, estate agents tend to act beyond their competence, assuming the role of “lawyer” when dealing with vendors and purchasers.
To prevent problems with over-confident estate agents, we always remind them that legal matters should be left to us. The situation with Ms. Balloch was no different, and we advised her in writing as follows:
“We advise that we represent the vendor in relation to the sale of the above property, and we are instructed that your office has been appointed for the purposes of marketing the property and effecting a sale in accordance with Section 53A of the Estate Agents Act.
In accordance with our client’s instructions, we enclose sale documents for use in this matter.
In order to properly protect our clients’ interests in this matter, we provide the following instructions for your guidance in effecting the sale of our client’s property:
1. The REIV “Contract Note” is not to be used in this sale. As we have been instructed to prepare the legal documents by which the sale of the above property is to be effected, and we have prepared the enclosed combined Contract Note and Section 32 Vendor’s Statement for this purpose, there is no requirement for the preparation of an REIV Contract Note.
Our Contract Note and attached Special Conditions provide the vendor with maximum legal protection, and take into account such issues as land identity, purchaser acknowledgements and warranties, and comprehensive default provisions. No part of it should not be altered without prior consultation with us.
2. Transmission Application We advise we are in process of preparing the Transmission Application to have the executors names registered on Title. Please contact us before an interested Purchaser signs the Contract. If the executors are not registered on Title at this time we will need to amend the Contract, making it subject to registration going through.
3. Building inspection Please note that item 2 under the heading “SUBJECT TO” should be deleted if the purchaser is not purchasing subject to a building inspection report or a pest inspection report.
4. An estate agent is not permitted to draft or insert special conditions. Where a purchaser requests the insertion of special conditions into a contract, that purchaser must be advised to seek independent legal advice from a qualified legal practitioner, and to have their own legal practitioner draft appropriate special conditions on the purchaser’s behalf. An estate agent who advises a purchaser as to the appropriateness or otherwise of a special condition, or who inserts any special conditions into a contract, breaches Section 314 of the Legal Practice Act 1996.
5. Contract to be checked by vendor’s lawyer. Where a purchaser has arranged for the insertion of any special conditions into the contract, the vendors should have this drawn to their attention so that they have an opportunity to have the offer checked, and to seek our advice prior to acceptance.
6. Auction conditions
The combined Contract/Section 32 does not contain “auction conditions” as such. In the past it was common practice to include conditions in the Contract of Sale, which purportedly set out the procedures to be adopted at auction. This practice is now regarded as misleading and deceptive.
If property is to be sold by auction the “Auction Rules” at Special Condition 14 makes reference to the standard auction rules as set out in the Sale of Land Regulations.
7. Deposit Release Statement
Also enclosed is the Section 27 Deposit Release Statement for completion by the vendor upon sale. Please arrange for the vendor to complete this document immediately upon sale, and serve the same upon the purchaser. Please confirm to the vendor that the purchaser is under no obligation to release the deposit early, and may even object to its release before settlement.
8. Copies of sale documents
The sale documents have been delivered as a single, bound document. This is to ensure that the document is complete and secure. You are free to make as many copies of the documents as you may require, but we do recommend that the document be kept bound at all times in order to avoid the loss of any pages.
If you have any queries regarding the combined Contract Note/Section 32 Vendor’s Statement, or legal matters in relation to the sale of the property, please do not hesitate to contact us.”
We believed that our instructions to the estate agent were quite precise and easy to understand.
So how did Ms. Balloch handle the matter? She telephoned our office to give us her opinion as to what the sale documents should and should not contain. She also stated that potential purchasers wanted certain conditions included in the contract. Ms. Balloch was told that the purchasers should be advised to obtain legal advice, and to have their solicitor prepare their offer.
When Ms. Balloch indicated that she would draft the conditions for the purchaser I advised her that she is not permitted to draft special conditions, that doings so would put her in a position of conflicting interests, and that in my opinion she would be committing a criminal offence if she did so. Ms. Balloch indicated that she had been in real estate long enough to know what she can and cannot do, and did not need to be advised by a lawyer. I become so alarmed about the matter that I sent a fax to the Director of Jellis Craig. Here is what I said:
“I write to express concern about the conduct of Ms. Judy Balloch of your office.
I am advised that Ms. Balloch has taken it upon herself to enter into discussions with a solicitor representing a potential purchaser, and that her conduct may constitute the giving of legal advice and/or the performance of legal work, contrary to the provisions of the Legal Profession Act 2004.
Ms. Balloch has also taken it upon herself to contact my staff and to offer her opinion as to what should or should not be included in the Section 32 Vendor’s Statement and the Contract Note prepared in relation to the sale of the above property.
I am now forced to lodge a formal complaint about Ms. Balloch’s behaviour, and to seek confirmation from your office that Ms. Balloch will refrain from meddling in the legal aspects of this matter. In particular I require confirmation from your office that:
- Any concerns Ms. Balloch may have in relation to documents prepared by this office are brought to my personal attention in writing;
- Ms. Balloch will refrain from advising our clients in relation to legal matters associated with the sale, and will advise our clients to direct all enquiries regarding legal matters to our office;
- Ms. Balloch will refrain from interpreting the legal documents prepared by our office to our clients or to any prospective purchasers, and will refer parties to the respective legal advisers for this purpose;
- Ms. Balloch will make no further angry telephone calls to my office regarding matters that are not within her competence.
As you will appreciate, it is our role to ensure that the vendors’ legal interests are protected in the conduct of the sale.
Similarly, it is the role of the purchasers’ lawyers to protect the interests of the purchasers.
The role of the estate agent is limited to the introduction of the purchaser to the property.”
We received no reply from Jellis Craig.
Eventually, we received an executed contract from Ms. Balloch. It was apparent that Ms. Balloch had ignored the instructions given to her, played the role of “lawyer” by drafting a special condition on behalf of the purchasers, and “botched it up”, creating confusion for all concerned.
Ms. Balloch’s covering letter (a copy of which is reproduced as part of this posting) raised a number of questions.
Ms. Balloch stated in her letter that the contract was attached, but that is was “not binding”.
What was going through Ms. Balloch’s mind when she produced a contract that was “not binding”? And what made Ms. Balloch believe that the contract she had produced was not binding?
The contract was filled in with the details of the parties and the particulars of the sale. It also contained a special condition that Ms. Balloch had drafted (illegally and incompetently in our opinion), and was signed by the parties. In fact, the contract was complete and was most certainly binding.
As the result of Ms. Balloch’s incompetent meddling in the legal aspects of the sale, her illegal drafting of a special condition, and her failure to follow simple instructions, what began as a straight-forward sale and conveyancing transaction became a mess.
We now call on the regulating authorities to take decisive action to prevent Ms. Balloch and other estate agents from engaging in improper and illegal conduct in the handling of real estate contracts.
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