Court upholds agents boozy lunch site introduction commissions

A property consultant who “sourced” early learning centres for investors at a fee of $2000 per approved child place has fended off allegations he was working unlicensed as a real estate agent to recover $1.2 million in site introduction commissions.

Hilton Headley – whose previous experience at Colliers, JLL, Macquarie Group, Stockland and Colorado ensured he had a wide network of industry connections – had let his commercial real estate licence lapse in May 2014.

He understood the use of his personal relationships to connect experienced childcare operators such as Guardian and Kids Club Childcare with agents and developers did not require any license.

At an encounter at the Woollahra Hotel with former Stockland colleague Glenn Dumbrell in September 2017, Headley told the nascent ELC developer that he was “happy to steer” further opportunities his way for the same fee he charged others in the industry.

Their renewed association developed quickly.

Within days, Headley provided Dumbrell and his financial backer Simon Larcombe the first deal they would consummate, a 94 place childcare centre at Hurstville.

The trio discussed the terms – $2000 plus GST “per kid” with half payable on signing a lease and the balance on opening of the centre – at a “boozy lunch” over several hours at the Woollahra Hotel’s Bistro Moncur.

Headley knew Larcombe as a school friend of his younger brother and hence did not seek any written confirmation of the terms.

Following the execution of an agreement for lease and development approval for the Hurstville site in June 2018, Larkham’s company paid 50% of Headley’s asking fee based on a downsized occupation of 72 children.

Headley sourced a further seven sites in the ACT – through Burgess Rawson’s Guy Randell – that Larcombe’s company took on.

By the end of 2019 – after Headley had received close to $500,000 in first stage payments for his introductions – Larcombe became frustrated with the delays being encountered on developer compliance with DA conditions and getting the centres opened.

He proposed revised payment terms for each site, ranging from $500 to $1,650 “per pax” and “drop dead” dates for premises construction to begin.

Under financial pressure of his own, Headley contemplated accepting the revised terms to ensure immediate payment, actions which Larkham interpreted as acceptance.

Notwithstanding payment of reduce some, Headley filed proceedings to recover his full entitlement under the original terms.

Justice Rees accepted that an agreement had been reached at Bistro Moncur or shortly thereafter substantially in the terms that Headley alleged noting that such terms had been observed by Larcombe until he made his counterproposal.

The judge also rejected the contention that Headley was bound by his “agreement” to accept a lower fee noting that the absence of any consideration other than that which was by its nature “illusionary”.

He closely examined Headley’s activities in relation to each property that he “sourced” and concluded that the introduction of particular properties on behalf of a developer or to an investor met the requirements of “carrying on business of real estate agent”.

Because he had though in respect of the ACT sites worked through Mr Randall – himself a licensed agent who conducted all of the interaction between the relevant parties – such introductions were not in the capacity “of an agent” thereby avoiding the consequences of the NSW real estate licensing requirements.

That was not the case in respect of Hurstville meaning – had the first payment not be made – that Headley would have been prohibited from recovering it. That said, Justice Rees declined to order that he be required to refund it. There was no dispute in respect of the second tranche of the Hurstville fee because the deal had been abandoned and Headley had not invoiced for the balance.

The court ordered that Larcombe’s company pay Headley a total of $750,000 for the further sites he had “sourced” in respect of which leases had been executed and noted that a further sum of $418,000 would be payable on the opening of three further centres.

Note that in Queensland the mere “introduction” of properties to a prospective buyer, lessee or seller does not appear to be an activity that requires a real estate licence if the introducer does not engage in any negotiation. That said, courts have in the past taken a broad approach to what they considered to be “carrying on business” as a real estate agent.

White Pointer Investments Pty Ltd v Creative Academy Group Pty Ltd [2023] NSWSC 817 Rees J 25 July 2023 Read case

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Court declares 95% of lenders fees to be penalty charges

In June 2022 Steve Saad borrowed $60,000 – including loan establishment fees and legals – from a private lender and entered into a loan agreement that required repayment in full within 2 months.

An additional amount was advanced by lender First Cash Flow Solutions the following month to bring the total principal up to $86,000.

Interest – for on time weekly payments – was at the “lower” rate of 2.15% per month but escalated to the “base” rate of 4.00% per month if overdue. Arrears were capitalised and attracted interest at the higher “base” rate.

The agreement specified a raft of other charges including a $33 monthly administration fee and a payment default fee of $1,100 if sums were not received by “within 48 hours of the due date for payment”.

The breach of any of the several banking covenants – whether of trivial or serious consequence to the lender – triggered other obligations.

At the same time as signing up the loan agreement and a second mortgage over his home as security, Saad executed two documents waiving the right to take legal advice and to take financial advice.

The borrower made his first two interest payments but thereafter went into default prompting First Cash’s termination of the arrangement in August 2022.

It thereafter notified Saad he was obliged to pay additional fees by reason of the default including a “risk fee” of 2% per month on the total outstanding and a default management fee of $440 per week.

After NAB sold up the property for $870,000 in April 2023, the amount left to satisfy First Cash’s second mortgage was some $14,000.

It filed a summons in November 2022 to recover $142,395 which – by the time the matter came before Justice Stephen Robb in the NSW Supreme Court in May 2023 – had ballooned to $222,200 and included $136,000 in interest and charges.

Notwithstanding Saad had filed no defence and did not appear at the hearing, Justice Robb required First Cash to justify its claim and to overcome the presumption that the weekly default fee – because it imposed on the borrower same cost for both serious and trivial breaches – was a penalty.

While the judge was not prepared to interfere with or criticise the rates of agreed interest, he was concerned with numerous default fees claimed for each week up to judgement.

He noted that the weekly interest at the “lower” rate was $428 and that same escalated to $797 on default by reference to the “base” rate. But with the additional $1,100/week payment default fee, the weekly impost rose to $1,896.

This was in his view “extravagant or out of all proportion to, or unconscionable” in comparison with the damage that might be anticipated to follow from the breach.

The lender’s additional administrative overhead was – after all – already compensated by the right to capitalise unpaid interest and the borrower’s indemnity for all losses.

The payment default fee thus were unenforceable penalty charges.

And because the “risk fee” and “default management fee” were sought to be imposed after the loan agreement had been terminated by the lender, they too were unrecoverable. His Honour left open the question as to whether those fees also constituted penalty charges.

The disallowed charges were payment default fees of $57,200; “risk” fees of $15,600; and default management fees of $17,200.

First Cash was restricted in its recovery to a total of $132,000 – $90,000 less than the sum claimed – which includes just $4,000 of administrative etc charges after principal and interest.

First Cash Flow Solutions Pty Ltd v Saad [2023] NSWSC 686 Robb J, 22 June 2023 Read case

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