Sign jumping and contractual interference by agents

Real estate agents may be aware of, or have been victims of, the practice of “sign jumping”, where an agent contacts a seller of a property who has listed with another agent to persuade the seller to switch real estate agencies. Such persuasions can include comments about the appointed agent’s abilities or claims about potential buyers. Although unethical and controversial, sign jumping is not an illegal practice.

However, in circumstances where a sign jumping agent induces a seller to breach an existing agency appointment, the seller could potentially be liable for two commissions and the original sales agent may be able to bring a claim against the sign jumping agent for the tort of contractual interference (intentional interference with contractual relations and inducing breach of contract) if certain criteria are met.

In this article, we outline the key considerations for bringing a claim for the tort of contractual interference against a sign jumping agent.

Contractual Interference

The tort of contractual interference arises where a third party intentionally induces a party to a contract to breach their obligations. [1] In these circumstances, the relevant contract is the real estate agent’s Form 6 Appointment and Reappointment of a real estate agent, resident letting agent or auctioneer (Form 6 Appointment).

The elements that must be established in respect to a claim for the tort of contractual interference include:

• There must be a contract (Form 6 Appointment) between the plaintiff (the initial agent) and a third party (the seller);
• The defendant (the sign jumping agent) must have knowledge that the contract exists;
• The defendant must have knowledge that if the third party does, or fails to do, an act, that conduct would be a breach of the contract;
• The defendant must intend to induce or procure the third party to breach the contract; and
• The breach must cause loss or damage.[2]

Importantly, the sign jumping agent’s inducement or procurement must cause a breach of the other agent’s Form 6 Appointment. As agents are aware, there are three circumstances in which a seller can appoint an agent to sell their property. These include:

1. An open listing;
2. A sole agency; and
3. An exclusive agency.

Sign jumping agents will likely approach sellers who have appointed sales agents on a sole or exclusive agency basis in an attempt to secure an appointment and obtain a commission on the sale of the property.

A sole agency is where an agent has the exclusive right to sell the client’s property during the appointment term. However, the seller is not required to pay commission to the agent if they sell the property themselves and the agent is not the effective cause of the sale.

Comparatively, an exclusive agency appointment entitles the agent to claim commission regardless of who sells the property during the term of appointment.

In the context of sign jumping, a breach of contract may arise if the seller appoints a new sales agent during the current agent’s term and invalidly attempts to terminate the pre-existing agent’s appointment or breaches another term of the Form 6 Appointment, such as failing to pay any commission owing.

If an action for the tort of contractual interference is successful, the agent may recover damages for the loss suffered, which can include aggravated or exemplary damages.

Bringing a Claim against Sign Jumping Agents

Agents should consider whether bringing a claim for the tort of contractual interference is commercially beneficial. Although sign jumping is a frustrating and unethical practice, agents should note that the tort of contractual interference is a complex claim to prove due to the requirement of establishing that the sign jumping agent had knowledge of a contract and intention to cause a breach at the time of the relevant conduct.

Further, there is little precedent and legal commentary available in Australia in relation to claims for the tort of contractual interference against a sign jumping agent.

As mentioned previously, the tort of contractual interference may only be established where there is a breach of the Form 6 Appointment. Where seller clients have breached exclusive or sole agency appointments, they may be liable to pay commission to both agents. In these circumstances, it may be more time and cost effective to recover commission from the seller, rather than attempting to prove a more complex cause of action against the sign jumping agent.

Best Practice

In addition to potential legal consequences, the REIQ’s Best Practice Guidelines contain several sections discouraging sign jumping under chapter one ‘General Agency Practice’ by setting standards of behaviour for members in their dealings with each other, other agents and clients.

For instance, members must “act ethically, fairly and honestly when dealing with all parties so as to minimise controversy and to not prejudice the reputation of the Institute and/or the Members”.[3]

Further, Members must not “make false, derogatory or unprofessional comments (in writing or verbally) about another Agent or Member in order to seek a commercial advantage of some kind and/or cause a Client to terminate or not renew another Appointment”.[4]

Conclusion

Although the real estate industry is competitive, it is important that agents act ethically, fairly and in a professional manner when dealing with clients, members of the public and other agents. This includes avoiding interference with the listings of other agents or making any derogatory and potentially defamatory comments about other agents. Engaging in such behaviour may result in circumstances that could give rise to a potential action for the tort of contractual interference, a claim for defamation and a negative reputation in the real estate industry.

Read another property sales article: Understanding fee disclosure requirements: Seller's disclosure.

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