When Is an Estate Agent Entitled to Commission If the Contract Does Not Proceed?

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Introduction

It’s a situation that arises more often than many would like to admit. A buyer makes an offer, the contract is signed, everyone celebrates — and then something goes wrong. The contract doesn’t proceed to settlement. The purchaser pulls out under a finance clause, fails to obtain loan approval, or perhaps the vendor decides not to continue for their own reasons.

In the middle of all this stands the estate agent, who has invested time, money and effort to find the purchaser. Are they still entitled to commission when the deal collapses? The short answer is: it depends heavily on the circumstances, the wording of the authority, and the legal principles developed through decades of case law.

For estate agents, this is a matter of crucial importance. Being left unpaid after diligently introducing a buyer can threaten cash flow and the sustainability of a practice. For vendors, it can be a shock to learn that they might still owe thousands in commission even if the sale falls over. This article explores the legal landscape in Victoria, drawing on leading cases, statutory obligations, and recent industry guidance.

The general principle: No sale, no commission — with many exceptions

Under the typical exclusive authority (like the REIV Exclusive Sale Authority), agents are appointed to sell the property on agreed terms. Most authorities state the commission becomes payable on the “completion of a sale” or sometimes on “signing of an unconditional contract.”

Yet decades of Victorian and High Court decisions illustrate that these phrases do not always protect the vendor from paying commission if the contract later fails. Whether the agent is entitled to commission often depends on:

  • The precise terms of the agency agreement (authority).

  • The reasons why the contract did not proceed.

  • Whether the agent did all that was required to earn their fee under the authority and common law principles.

Key scenarios where agents are or are not entitled to commission

1. Contract terminated under a special condition

If the contract fails due to a special condition not being satisfied (for example, subject to finance or a building inspection clause not met), the deposit is refunded to the purchaser. In this case, the agent is typically not entitled to commission, as confirmed by:

  • Trotter v McSpadden [1986] VicRp 32, where it was held that if the contract was conditional and terminated in accordance with its terms, no commission is payable.

This is why prudent agents often monitor critical dates and keep vendors informed about the risks of early releases of deposits or allowing escape clauses to lapse without extensions.

2. Vendor allows purchaser to withdraw (when not entitled)

If the vendor voluntarily allows the purchaser to walk away without being strictly entitled to under the contract, the vendor may still owe the agent commission. The courts see this as the vendor frustrating the agent’s right to earn the commission by closing the deal.

  • In Cannon Real Estate Pty Ltd v Hubble [2000] VSCA 116, the Victorian Court of Appeal upheld the agent’s claim for commission where the vendor agreed to let the purchaser out despite there being no right to terminate.

3. Purchaser defaults and forfeits deposit

If the purchaser fails to settle (breach of contract), leading to forfeiture of the deposit, the agent’s commission is normally secured out of the deposit even if the sale never completes. As noted in:

  • Phillipson & Anor v Indus Realty Pty Ltd [2004] VSCA 61, which reversed a lower court to confirm the agent was still entitled to commission from a forfeited deposit even though the authority said “subject to completion.”

This means agents should pay close attention to how the authority words “completion of sale” and ensure it covers forfeited deposits.

4. Vendor defaults or breaches contract

In cases where the vendor is at fault, causing the purchaser to rescind and receive a refund of the deposit, the agent may still have earned their commission. However, they cannot generally deduct it from the deposit, and must seek payment directly from the vendor.

  • This principle was confirmed in Mincher v Birtane Seven Pty Ltd (1993) V ConvR 54-456, where the agent’s entitlement stood despite the purchaser rescinding due to vendor breach. The purchaser’s remedy is to claim back against the vendor, not against the agent.

What about “no sale – no charge” clauses?

Many authorities include wording like “if a sale is not effected, no commission is payable.” This seems clear, but case law shows the courts look carefully at who caused the sale to fail.

  • In Real Estate City Pty Ltd v Moustafa & Anor [2005] VSCA 181, the agent’s claim failed because the authority was explicit: no sale, no charge — even though the vendor later refused to settle.

Other critical nuances

  • If the deposit cheque bounces or is never collected by the agent, they may lose their right to commission. This was illustrated in Akarana Real Estate Ltd v Angus (1993) ANZ ConvR 91, where the agent had failed to secure the payment.

  • If the deposit was released early to the vendor (under a Section 27) and then the vendor defaulted, the agent is still entitled to the commission portion already deducted. The purchaser must seek recovery directly from the vendor.

  • In sales of businesses, not just land, there are decisions (like Raffoul v Fresh 2 U Pty Ltd & Ors [2013] VSC 308) upholding commission even if the deal collapses, provided the agent met the criteria of their appointment.

Practical guidance for agents and vendors

For estate agents:

✅ Use clear authority agreements. Ensure the conditions for payment of commission are unambiguous and cover scenarios like forfeited deposits or purchaser default.

✅ Follow up on critical contract milestones (finance approval, building inspections, deposit clearances) and keep meticulous records.

✅ Advise vendors early if they are considering letting a purchaser withdraw, as it could trigger liability for commission.

For vendors:

⚠️ Be wary of early agreements allowing a purchaser to walk away. Seek written advice before consenting to such variations.

⚠️ Remember that if you cause the sale to fail, you might still owe the agent’s commission.

Conclusion: a complex area needing clear contracts and sound advice

As David Dawn, Licensed Conveyancer at Victorian Property Settlements, often reminds clients and agents alike: “Don’t assume ‘no sale, no fee’ is ironclad. The circumstances leading to the breakdown of the deal — and how the agency agreement is worded — will determine if commission is payable.”

Victorian Property Settlements frequently helps real estate professionals and property sellers navigate these tricky issues, ensuring contracts, Section 27 releases, and agency authorities are correctly drafted and understood.