Does the Agent or the Agency hold the Mandate?

I have had some interesting questions from real estate principals over the last few weeks regarding mandates.  If a client, let us say a seller, signs a mandate with a property practitioner (PP), who holds the mandate?  The property practitioner or their agency?  This obviously has a significant impact on what happens to the commission if the PP leaves the agency.

To begin with, let us refer to the common law of agency in South African law.  Unfortunately, terminology confuses the issue.  In terms of our common law, a principal appoints an agent to act on the principal’s behalf.  The actions of the agent create legal relationships between the principal and a third party.  The agent is authorised by the principal to act on their behalf in creating legal obligations with a third party.

In terms of our common law, the principal is the client.  However, in the world of real estate, as you know, the principal is the person who manages or owns the agency and not the client.

Again, in terms of our law, the concept of “agency” generally refers to the position of an agent as representative of a principal (client) to perform legal acts on their behalf.  We know that the mandate that the client gives in real estate usually does not give the agent the right to perform legal acts on behalf of the client.

There are therefore some important nuances between the common law of agency and the law relating to real estate agency.  In our common law, the client gives a mandate to the agent.  However, in real estate, the client gives a mandate to the agency (being the agent for the purposes of the mandate) and not the agent (being the PP who will do the work).  Hence, the legal relationship is between the client and the agency and not the agent (PP).

In terms of the common law, an agent acts as the representative of the principal (client).  The agent’s actions can be to the benefit or detriment of the principal.  The agent has no liability.  However, this is not the case when talking about the estate agency law.  In terms of the Property Practitioners Act (PPA) and the Code of Conduct, the PP (agent) may very well have liability for actions or omissions when acting on behalf of their client.

Over the next few weeks, I will discuss some interesting scenarios relating to all of this.  What happens to a PP’s commission if they leave the agency where they were working?  What happens if a client who has signed a mandate with Agency A where the PP was working, wants that PP to continue to work on their property, but they are now working at Agency B?  Is a property practitioner an agent or an employee and what does this distinction make any difference?

You are welcome to email me on graeme@cpmd.co.za

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