An agency agreement contains a clause stating that the agent's commission is payable even if the property is sold by the vendor directly to a buyer introduced by the agent during the agency period, but the sale settles after the agency expires. Is this clause enforceable?
Correct Answer
B) Yes, provided the clause was clearly explained and the buyer was introduced during the agency period
Such clauses are enforceable provided they are clearly disclosed and explained to the vendor, and the agent can demonstrate they introduced the eventual buyer during the agency period. This protects agents from vendors deliberately delaying transactions to avoid paying commission while ensuring vendors understand their potential ongoing obligations.
Why This Is the Correct Answer
Option B is correct because tail clauses are legally enforceable under New Zealand contract law when properly disclosed. The Real Estate Agents Act 2008 emphasizes transparency and fair dealing. If the agent clearly explained the clause to the vendor and can demonstrate they introduced the buyer during the agency period, the commission obligation survives the agency expiry. This protects agents' legitimate business interests while ensuring vendors gave informed consent to the terms.
Why the Other Options Are Wrong
Option A: No, commission is never payable after an agency agreement expires
This is incorrect because commission can be payable after agency expiry through valid tail clauses. The law doesn't automatically terminate all commission obligations when an agency expires - contractual terms can extend beyond the agency period if properly agreed upon and disclosed.
Option C: Only if the settlement occurs within 30 days of the agency expiring
This is wrong because there's no specific 30-day statutory limitation for tail clauses in New Zealand real estate law. The enforceability depends on proper disclosure and the agent's ability to prove they introduced the buyer, not arbitrary time limits.
Option D: Only if the vendor agreed to extend the agency agreement
This is incorrect because extending the agency agreement isn't necessary for tail clause enforcement. The clause operates independently of the main agency period, provided it was properly disclosed and the conditions (buyer introduction during agency) are met.
Deep Analysis of This Agency Practice Question
This question examines the enforceability of 'tail clauses' or 'protection clauses' in agency agreements under New Zealand real estate law. These clauses protect agents from vendors who might deliberately delay settlements to avoid commission payments after agency expiry. The Real Estate Agents Act 2008 requires agents to act with due care, skill, and diligence, which includes protecting their legitimate business interests through properly drafted agreements. The key principle is that contractual obligations can extend beyond the agency period if clearly disclosed and the agent can prove their contribution to the eventual sale. This reflects the balance between protecting agents' rights to fair compensation and ensuring vendors understand their ongoing obligations. Such clauses are common in practice and serve to prevent manipulation of timing by vendors while maintaining transparency in the agency relationship.
Background Knowledge for Agency Practice
Tail clauses (protection clauses) in agency agreements allow agents to claim commission on sales that settle after agency expiry, provided they introduced the buyer during the agency period. Under the Real Estate Agents Act 2008, agents must ensure all terms are clearly disclosed and explained to vendors. These clauses prevent vendors from manipulating settlement timing to avoid commission payments. The enforceability requires: clear disclosure, vendor understanding, and proof of buyer introduction during the agency period. This balances agent protection with vendor transparency requirements.
Memory Technique
Remember TAIL: Transparent disclosure, Agent introduced buyer, In agency period, Lawfully enforceable. Like a dog's tail that follows the body even after the dog stops moving, commission can follow after agency expires if properly attached.
When you see questions about commission after agency expiry, think TAIL. Check if the clause was Transparent, the Agent introduced the buyer, it happened In the agency period, and it's Lawfully structured. This helps identify valid tail clauses.
Exam Tip for Agency Practice
Look for two key elements in tail clause questions: proper disclosure to the vendor and proof the agent introduced the buyer during the agency period. If both exist, the clause is usually enforceable regardless of timing.
Real World Application in Agency Practice
Agent Sarah lists a property with a 90-day exclusive agency including a tail clause. On day 85, she shows the property to the Johnson family who express strong interest but need time to arrange finance. The agency expires, but three weeks later the Johnsons contact the vendor directly and purchase the property. Because Sarah clearly explained the tail clause and can prove she introduced the Johnsons during the agency period, she's entitled to commission despite the agency having expired.
Common Mistakes to Avoid on Agency Practice Questions
- •Assuming commission rights automatically end when agency expires
- •Thinking tail clauses need specific time limits to be valid
- •Believing agency extension is required for commission after expiry
Related Topics & Key Terms
Key Terms:
More Agency Practice Questions
Under the Real Estate Agents Act 2008, what is the primary fiduciary duty that a real estate agent owes to their client?
What type of agency agreement allows a real estate agent to receive commission even if the property is sold by another agent?
Which licence category is required for a person to sign agency agreements on behalf of a real estate agency?
When must a real estate licensee disclose any personal interest in a property transaction?
Sarah, a licensed salesperson, discovers that a property she is marketing has a significant building defect that the vendor has not disclosed. What should she do?
- → Under a sole agency agreement, in which circumstance would the agent NOT be entitled to commission?
- → A real estate agent receives two offers on a property at the same time. What is their primary obligation?
- → Which of the following situations would create a conflict of interest requiring disclosure by a real estate licensee?
- → A branch manager discovers that one of their salespersons has been providing incomplete information to potential purchasers about a property's title restrictions. What is the branch manager's primary responsibility?
- → An agent has an exclusive agency agreement that expires in two days, but the vendor wants to extend it for another month with a different agent. The original agent claims they introduced a purchaser who is still negotiating. What determines the original agent's entitlement to commission?
- → Under the Real Estate Agents Act 2008, what is the primary duty that a real estate agent owes to their client?
- → Which licence category allows a person to carry out real estate agency work on behalf of a licensed agent?
- → What must be included in every agency agreement under the Real Estate Agents Act 2008?
- → When must a real estate agent disclose that they have a personal interest in a property transaction?
- → Sarah, a licensed salesperson, discovers that her vendor client has not disclosed a known leaky roof issue. What should Sarah do?
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An agency agreement contains a clause stating that commission is payable even if the sale falls through due to the buyer's inability to obtain finance. The sale proceeds to unconditional status but subsequently fails due to the buyer's finance decline. Is commission payable?
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