The meaning of “Legally Enforceable Contract” in the Real Estate Industry Award 2010
March 10, 2011
Whilst the real estate industry has traditionally only paid sales commission to ex employees if the transaction had become unconditional prior to an employee leaving, the new Modren Award has brought new meaning to the term legally enforceable contract i.e. unconditional contract.Clause 17.3(a)(i) of the Real Estate Industry Award 2010 reads:
| (a) The employee is entitled to be credited with a portion of the commission paid to the employer, incentive payments or bonuses calculated in accordance with a written agreement, for any transaction where: (i) there was an existing legally-enforceable contract either: • before the cessation of the employee’s employment; and • if the employer gave notice to the employee, during the notice period; or • if the employer asked the employee to waive the notice period and the employee agrees, during the notice period to which the employee would have been otherwise entitled; and (ii) the commission is paid by the client; and (iii) the commission payment is cleared into the employer's bank account |
Under normal circumstances a legally-enforceable contract can only exist in law if it is unconditional.
However, Clause 3.1 provides a definition of a legally-enforceable contract in the Award that reads:
| "Legally-enforceable contract means a contract of sale, lease or agreement to lease that is signed by both the property owner and the intending buyer or lessee." |
This means that when
- a contract is signed (whether or not it is conditional) it becomes a legally-enforceable contract by virtue of the definition; and
- conditional sales that become unconditional after the employee leaves, the employer will be obliged to pay the commission to an ex employee when the contract is settled (Clauses 17.3(a) (ii) & (iii)).
Whilst this concept clashes with the normal understanding of what legally-enforceable means in law, the Award definition seems to broaden this concept to simply encompass a “signed contract”, irrespective of whether it is still subject to any conditions.
These provisions have caused confusion as it does not reflect the customary practice of most Real Estate principals. The reliance on the term “legally-enforceable” (as defined) in the Award, in my view is a misnomer.
For more information contact Jacques Franken.
