Eskom loses fee fight

Posted On Thursday, 07 September 2006 02:00 Published by eProp Commercial Property News
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Agents see growing trend of large businesses to avoid paying their full commissions

Infrastructure IndustryIt was SA's record office lease, worth R650m over 15 years. The agent, Broll, had come to the rescue of Eskom when it couldn't rent out 35 000 m² at Megawatt Park, Johannesburg, in the soft letting market of 2002/ 2003.

Eskom had been negotiating with the SA Revenue Service (Sars) to take the space, but Broll, which won a tender in 2003 to act as Eskom's letting agent, proposed that Sars centralise all its regional branches.

Sars bought the idea. The rent started at about R1,8m/month, increasing at 8%/year. In the 15th year rent would be R5,2m/month. Eskom signed a lease with Sars in November 2003.

Eskom had hit the jackpot , yet when Broll executive director David Alcock sat down to finalise the commission, Eskom GM Reuben Mamorare was not prepared to pay the standard commission of R10,2m. This despite a letter to Broll saying that commission based on the "Sapoa tariffs" would be paid at the successful conclusion of a lease contract. (Sapoa is the national commercial property organisation.)

Broll had also established the rate in its tender: "Our suggestion regarding fees is: for leases successfully concluded by its own brokers, Broll receives 100% of commission according to Sapoa tariff."

In April, Broll's Fran Teagle and Eskom's Gouws de Bruyn signed Eskom's general services contract, which reads: "Sapoa commission on rentals will be negotiated with each rental with the appointed Eskom holdings representative [Kgobe Seate]."

Sapoa tariffs were also raised in a meeting between Werner Burger, representing Eskom, and Teagle on February 5 2003, when a verbal agreement was concluded. The FM understands that Eskom had only budgeted for agents to conclude five-year leases.

Commercial agents report a trend of big companies trying to pay a reduced commission despite formal agreements with their brokers.

"It's becoming quite common," says David Green, CEO of Pace, one the biggest commercial letting agents. "The agents must decide whether to sue the client, wait years for the money and never do business with the client again, or give in and hope to make it up with future deals. Most go for the latter as they don't have the capital to fund a court case; they need the money and they don't want to lose the client."

But Broll sued and three years later, in March this year, the case went before Judge Phillip Boruchowitz in the Johannesburg high court. Eskom produced a number of defences. These included that the verbal agreement of February 5 2003 was superseded by the general services contract and meant the commission had to be negotiated. Eskom also argued that the agreement and the general services contract were void because of vagueness as the commission, a material term of the agreement, had not been finalised.

Boruchowitz rejected Eskom's arguments and said the verbal agreement of February 5 2003 was the main agreement. Burger testified that he and Teagle had agreed that commission would be negotiated with each lease signed, with the Sapoa tariff serving as a basis for negotiation.

But Teagle said the agreement was that commission would be at the Sapoa tariff and that Broll was prepared to negotiate a reduced commission where necessary if the defendant's aspirations for the lease were not met. As their agreement was not in writing, Boruchowitz had to make a judg ment on the credibility of the opposing witnesses.

Of Teagle he said: "She impressed the court as an extremely credible and satisfactory witness and that her version is consistent with the objective facts and probabilities."

Burger's version, he said, "is improbable, inconsistent with the objective evidence and ought to be rejected".

Boruchowitz found in favour of Broll and ordered Eskom to pay costs, including Broll's cost for two advocates. He also refused Eskom's application to appeal.

But Broll will not get its R11m soon. Eskom has indicated it will petition the chief justice for leave to appeal.

Last modified on Monday, 04 November 2013 10:14

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