Issues Surrounding Commission Payments

Photo © Lauren Mauldin

BY LISA LAZARUS

What is Commission? Why do trainers charge commission? 

As many readers know, selling a horse requires significant work. You need to think about your horse’s strengths and weaknesses; what an appropriate sale price might be; and how you are going to advertise the sale – amongst many other things. You then need to assess your contacts in the equestrian industry: who might be an appropriate buyer or who might know an appropriate buyer? There will be preliminary discussions with potential buyers, and potential buyers will probably want to see the horse and trial it before committing. 

Buying a horse takes an even greater amount of effort. You want to find the perfect partner for you – a horse that matches your level of ability. Horses are not machines and there must be a match between the horse and the rider. They need to “connect”. You need a horse that will progress with you. You need a horse that will settle in easily at your stables. This is a decision that cannot be rushed. 

It goes without saying that it takes a huge amount of effort to ensure that a horse is sold and purchased for the right price and to the right owner. Many owners who want to sell and potential buyers therefore rely on their trainers. The trainers enjoy their trust and it is for this reason that trainers, who typically understand the market well, can estimate the value of the horse as well as answer the question of whether or not the horse matches your skills and ability as rider. Trainers also have a vast array of industry contacts and are often best suited to broker the deal. Invariably, they will charge a commission for this service. 

Commission is a payment, typically 10-20% of the overall purchase price of the horse, made to trainers in return for their knowledge, expertise and efforts in getting the deal done. Commissions paid to trainers are common practice in the equestrian industry around the globe. 

Photo © Lauren Mauldin

When is it illegal to charge commission? Why? 

There is nothing fundamentally immoral or illegal about the payment of commission. Remember, it is not only horse sales that operate on a commission basis: consider an art dealer who sources a sculpture for their client, or a realtor who finds the perfect property for a family. Commission works to compensate these individuals for their time, hard work, industry knowledge and for ultimately making the sale happen – it is only fair to properly reward them. 

That said, some individuals have been known to take unfair advantage of both the commission system and their clients’ good faith. Often clients are completely left out of the negotiation process – meaning the trainer is free to report back as much or as little detail on the sale as they choose. It is here that dishonest trainers use various techniques to fraudulently make extra profit. They might sell the client’s horse for a certain price and then lie to their client claiming they received less for the horse, meaning they keep the difference. They might be in cahoots with another trainer, on the buyer’s side, allowing them to draw up a financial agreement that dishonestly benefits them at the expense of both buyer and seller. 

Further they can act as the advisor to the buyer where they actually get paid for getting the seller to make the deal. If such is not agreed to in advance by all parties then it is illegal to “serve two masters”. The following California law California Business and Professions Code Section 19525 is one example of state laws prohibiting this and most US states have now implemented similar regulation. 19525. (d) It is unlawful for a person to act as a dual agent, which is hereby defined as a person acting as an agent for both the purchaser and the seller, in a transaction involving the sale, purchase, or transfer of an interest in an equine without the prior knowledge of both the purchaser and seller, and the written consent of both the purchaser and seller 

There have been several court cases that have highlighted how serious this problem can be: 

Photo © Lauren Mauldin

• In 2001, lottery winner Vanessa Laxon turned to her trainer for help buying a horse. Unbeknownst to Laxon, her trainer hatched a plan with an external trainer, buying the horse for $3,000 then subsequently selling the horse to Laxon for an inflated price of $25,000. The trainers then split the significant secret profits. The court found the trainers responsible and ordered them to pay Laxon financial damages. 

• In 2005 and 2006, the Thoroughbred world was rocked by California and Kentucky lawsuits filed by billionaire Jess Jackson(founder of Kendall-Jackson vineyards) against Emmanuel de Seroux and two others accused of collaborating to defraud him on purchases involving horses and the former Buckram Oak Farm in Kentucky. Jackson claimed his advisers overcharged him for the purchases of 30 horses and took undisclosed payments from sellers at thoroughbred auction sales. Both suits were settled before trial with de Seroux agreeing to pay out $3.5 million to resolve the case. 

The law does protect clients from fraudulent and dishonest trainers. As soon as a trainer agrees to be an agent for the buyer or the seller, they take on certain obligations. They must fully disclose information on the transaction to their client and, most importantly, they must act in their client’s best interests. For this reason, there should never be the same agent for the buyer and the seller – how can a trainer act in the best interest of both the buyer and the seller when both have totally conflicting aims? 

If you are a seller, while it is comforting to know that the law is on your side, it is always better to take preventative measures at first instance. You should look to work with a trainer who is well recommended – and that you completely trust. Ask to be included in the negotiation process. Speak to the buyer directly. Ensure all parties are informed as to the sale price and the commission price. 

If you are a trainer involved in brokering deals, the most important thing to bear in mind is transparency: you have a duty to properly disclose the details of the sale – including the final purchase price and the commission you are taking – to your client. Most clients will recognise and agree that you deserve fair commission. You must be open about the terms of it. 

Photo © Lauren Mauldin

What should I look for in a bill of sale agreement? 

Rule number one: ensure there is a bill of sale agreement! It is remarkable how many horse sales go undocumented. In Europe, most horse deals go without a contract. Frequently, the only documents related to the transaction in Europe are the invoice, if any, and a Veterinarian report. This however does not mean that the parties are without legal protection. In civil law jurisdiction (e.g,. continental Europe), such legal protection can be derived from the existing (mandatory) laws. In selling or buying a horse you are entering into a contract – a potentially very expensive one. The best way to protect yourself, and your legal rights, is to ensure that a proper bill of sale agreement is drawn up. 

In an ideal world, a bill of sale agreement will cover as many bases as possible. The buyer should be left 100% clear about the status of the horse and the transaction. At a minimum, the agreement should include details about the horse, including its age, sex and health condition and disclosure on the previous veterinary history of the horse (preferably certified by a vet) as well as a representation from the seller regarding their ability to transfer the ownership of the horse free of any encumbrances and rights of third parties. It should clearly detail the final price, all commission fees involved and the details of the agents. You should also take the prudent step of having the horse tested for Prohibited Substances, so that you can both (i) detect if the horse’s demeanour is influenced by drugs; and (ii) protect yourself against the risk of an anti-doping rule violation once you start competing with the horse. 

It can prove catastrophic if important details, such as commission, are left to informal verbal agreements. Including as much information as possible in the bill of sale agreement removes uncertainty and prevents disagreements down the line. Disagreements can lead to time consuming arguments and even worse, volatile and expensive lawsuits.

Lisa Lazarus, former FEI General Counsel, is Head of Equestrian Services at Morgan Sports Law which represents athletes. She can be reached at [email protected] 

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