Court examines difference between bringing in business and closing deals
A District Court in Singapore recently dealt with a commission dispute that highlights crucial lessons for HR professionals about structuring commission agreements and managing sales team expectations.
The case revolved around fundamental questions about when commission is truly earned - whether bringing in potential business is enough, or if closing the deal is what matters.
The case offers valuable insights for HR teams managing sales staff and commission structures, particularly around the distinction between introducing business opportunities and successfully closing deals. It demonstrates how informal arrangements and unclear terms can lead to disputes about compensation entitlements.
The dispute involved a real estate agency seeking $166,246 in commission, representing 1.75% of a $9.5 million industrial property sale. The real estate agent had arranged three property viewings for the eventual buyer in June, July, and September 2021, and secured their interest in the property.
Commission arrangements in Singapore's real estate industry often happen informally. The court acknowledged this practice, stating that "the appointment of agents can be a rather informal process" and that commission terms typically only come up when an agent presents a serious buyer.
The engagement occurred through WhatsApp messages between the real estate agent and the seller's personal assistant. These messages showed an agreement that the seller would pay 1.75% commission if the property sold for $9.5 million.
The initial deal faced obstacles when the buyer and seller disagreed on several key terms in the Option to Purchase. These included deposit amounts, environmental study requirements, and clauses about regulatory approval - elements that often impact property transactions.
From an employment perspective, the case highlighted how sales professionals need to manage negotiations effectively. The court found that when the buyer proposed changes to the terms, the first agent didn't actively try to negotiate a compromise, believing these changes weren't in the seller's best interest.
The court emphasised: "A successful transaction involves not just a suitable price but also a time at which [the seller] is willing to release his property and [the buyer] is willing to commit to the purchase as well as terms which meet the subjective needs of the parties."
The court explained that earning commission required more than just introducing opportunities. As noted in the decision: "The introduction of the ultimate purchaser by an agent to [the seller] is insufficient to establish that the agent was the effective cause of the sale."
Two months after the first deal fell through, a second agent sold the property to the same buyer. This agent succeeded by understanding both parties' concerns about the deposit amounts and approval requirements, leading to mutually acceptable terms.
This part of the case particularly resonates with HR professionals, as it demonstrates the importance of developing negotiation skills and understanding client needs among sales staff.
The judgment provided important guidance about performance expectations in sales roles. The court emphasised: "where there were many non-exclusive agents marketing a property, an agent would have to be extremely proactive in seeing a transaction to completion and in earning the corresponding commission."
Regarding causation, the court stated: "This was not a case in which the chain of causation between the efforts of [the first agent] and his co-broke agents and the eventual sale of the Property to [the buyer] was unbroken."
The court concluded by explaining why the second agent succeeded: "It was the efforts of [the second agent] that revived [the buyer's] interest in the Property and spoke with both [the buyer] and [the seller] to arrive at a set of mutually acceptable terms which eventually led to the sale." This highlights the importance of completing transactions rather than simply initiating them.
