Can an agent double recover?

The REIQ has recently become aware of a practice that raises some serious red flags for agents working in the commercial and retail space - and it’s worth making sure you understand the risks before it costs you your commission, or worse.

What’s the Issue?

Some commercial agents - often calling themselves “tenant advocates” - are helping tenants find commercial or retail premises, charging the tenant a fee or commission for that service, and also charging the landlord a separate “finder’s fee” for bringing them a tenant.

On the surface, it might seem like a smart way to get paid from both sides of a deal. In reality, it creates a serious conflict of interest - and could leave you significantly out of pocket.

What Does the Law Say?

Under the Property Occupations Act 2014 and the Property Occupations Regulation 2014, you have clear obligations as an agent. Sections 18 to 22 of the Regulation require you to:

• Avoid conflicts of interest - you must not take on (or continue) an appointment if it puts your own interests in conflict with your client’s (s.18)
• Do your homework on the property - verify ownership and property details before listing it for lease (s.19)
• Check the material facts - take reasonable steps to verify anything relevant to the lease, to avoid errors or misrepresentation (s.20)
• Check for existing agents - make sure another agent hasn’t already been appointed to let the property (s.21)
• Follow your client’s instructions (s.22)

On top of the Regulation, there’s a well-established common law principle that agents cannot make a “secret profit” or “secret commission” from the other party in a transaction. If you do, you risk losing your commission entitlement altogether - and you may be required to hand over the secret profit to your client.

Moreover, section 99 of the Property Occupations Act 2014 prescribes that a property agent or resident letting agent must not act for more than one party to a transaction. The penalty for breach is up to 200 penalty units, or equal to $34,540. If a property agent or letting agent acts for more than one party, the appointment is void. It is only in the case of an exchange of properties that acting for both parties is permitted.

How Does This Apply to Double-Dipping?

Let’s say you’re retained by a tenant to find them commercial space. You find them a great property and the landlord pays you a finder’s fee on the side - but your tenant doesn’t know about it.

Here’s where it gets risky:

• Your tenant could argue you didn’t act in their best interests - because you had a financial incentive to steer them toward that particular property
• The undisclosed finder’s fee could be treated as a secret commission - meaning you may have to hand it back to the tenant, and you could lose your right to claim any commission from the tenant
• Both the tenant and the landlord could argue you were looking after your own interests rather than theirs

Section 105 of the Property Occupations Act 2014 also sets strict requirements around how commission is calculated and disclosed in writing - and a landlord’s finder’s fee doesn’t fit neatly within that framework.

Is There Any Way to Do This Safely?

Technically, if you’re determined to collect fees from both sides, you would need to:

1. Fully disclose to your tenant client that you’re receiving a fee from the landlord - including the amount, and when and by whom it’s payable
2. Make sure the landlord’s fee is clearly not structured as a “commission” under section 105 of the Act
3. Make sure you could not be considered to have been “appointed” by both parties to the transaction.

But even with full disclosure, you’re not completely in the clear. If a dispute later arises between the tenant and the landlord, the tenant may still claim you favoured the landlord’s interests over theirs. That’s a conversation you don’t want to be having and you could be found to have been acting for both parties to the transaction, prosecuted by the Office of Fair Trading and exposed to a significant fine.

The Bottom Line

The safest and most straightforward approach? Don’t accept a finder’s fee from the landlord when you’re already being paid by the tenant to find them a property.

And don’t risk breaching section 99 of the Property Occupations Act and being prosecuted and fined.

This article is provided for general information purposes. Agents should seek their own legal advice if they have specific questions about their obligations.