Mandate clauses in leases - to do or not to do?

I have noticed that some estate and rental agencies include clauses in the heart of the standard lease agreements which they recommend to landlords and tenants which have the effect of providing to the agency a sole mandate to procure a buyer for the property should the landlord at any time during the duration of the lease or immediately on termination thereof elect to put the property on the market for sale.

The estate agent’s Code of Conduct (which is law) speaks directly to such practice and prohibits it. Any estate agent who therefore tries to enforce such mandate will be in a lot of trouble with the Estate Agency Affairs Board and could lose his/her licence to trade.

The Code of Conduct does not however prohibit the inclusion of a clause which provides an ordinary open mandate in the circumstances set out above and it is therefore not a violation of the Code for an estate agency to include and benefit from such a clause. Having said that I need to draw attention to the Consumer Protection Act (CPA) which of course regulates the relationship between landlords and agents.

In that relationship the agent is undoubtedly a supplier and the landlord is undoubtedly a consumer and therefore entitled to the protection of the CPA. It is my opinion that unless the clause dealing with the matter of an open mandate contained within the body of a lease agreement is pertinently drawn to the attention of the landlord (in other words presented in different or bold text and providing for
the signature or initials of the landlord in direct proximity to that clause) such clause will be found to offend against the CPA and will be unenforceable.

In this regard and without unnecessarily burdening this article with specific references to chapter and verse of the CPA I remind readers that what the CPA requires is fair and open dealing by suppliers. An
ordinary landlord would not expect clauses binding him to a mandate with an estate agent to appear in a document which is intended to regulate the relationship between that landlord and his tenant and it is therefore neither fair nor open to include such a clause in the lease.

Can an estate agency include a clause within a lease which stipulates that if the tenant introduced by that agency buys the property during the period of the lease or within say a few months of termination of the lease, it will be entitled to commission from the landlord? It is my opinion that such a clause is acceptable but agents would again and by virtue of the CPA, be well advised to ensure that such clauses are prominently presented in the lease documents and that the signature or initials of the landlords are provided for in close proximity to such clauses thereby signifying that the landlords have noticed it.

Prepared by Milton Koumbatis
Miltons Matsemela Inc
7 August 2013