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Why do I owe my broker a commission if my property was not sold?

Darrell Gold | The Legal Corner | 2014-06-05

Darrell Gold

This article has been contributed by Darrell Gold LLB with Robins Appleby LLP.

Many readers of this newsletter own a home and some may also own or come to own commercial properties. At some point in time one or more of those properties will be sold and a real estate Broker or agent will be involved in the sale. Almost always, the Broker requires the Vendor to sign a listing agreement (a form of retainer agreement) for the Broker to provide services to the Vendor to facilitate the sale of the property in consideration for the payment of a negotiated commission (see my Feb. 21, 2012 article in Property Biz). When the sale is concluded, the commission is usually paid.

However, what happens if the agent presents an offer at asking price and on the terms provided for in the listing agreement and the Vendor decides he no longer wants to sell the property? That was the issue the Ontario Superior Court of Justice determined in T.L. Willaert Realty Ltd. v. Fody, in its December 2013 decision.

Facts: In 2008 the Vendor signed the standard OREA form listing agreement with the Broker for the sale of a vacant parcel of land.  The listing agreement expired on April 30, 2009. S.2 of the agreement provided for a five per cent commission: “…The Seller further agrees to pay such commission as calculated above even if the transaction contemplated by an agreement to purchase agreed to or accepted by the Seller or anyone on the Seller’s behalf is not completed, if such non-completion is owing or attributable to the Seller’s default or neglect, said commission to be payable on the date set for completion of the purchase of the Property.”

Prior to expiry of the agreement, the Broker presented a series of offers from a purchaser, initially for $150,000 up to $186,000 without any counter-offer from the Vendor until it made one at $195,000.

On April 30, 2009 the purchaser offered (through the Broker) the full asking price of $199,900 closing June 30, 2009 that was e-mailed to the Vendor’s spouse and his lawyer. The Vendor did not respond. The Broker communicated with the Vendor by text message and told the Vendor that the offer had been dropped into his mailbox for review. There was no further communication for a few days until the Broker texted the Vendor that if the offer was not accepted, the Broker would look to the Vendor for full commission. The Vendor did not accept the offer.

The Broker sued in small claims court and was awarded its commission of 5% plus costs because a qualifying offer had been presented before expiry of the agreement.

The Vendor appealed and argued that he was never “presented” with the offer on April 30, the offer failed to include conditions that he had asked be included and that the Broker had breached its duty to the Vendor by representing both the Vendor and purchaser i.e. a “dual agency” arrangement.

Decision: The Vendor’s appeal was dismissed.

Reasons: Both at the initial proceeding in small claims court and confirmed on the appeal, the Vendor was found to have been “avoiding and otherwise frustrating” the Broker, likely because the Vendor decided he no longer wished to sell the property. The court said the Vendor “refused to act in good faith” with his Broker.

The Court confirmed that the offer was presented prior to the expiry of the listing agreement and that other terms the Vendor wanted but were missing were minor to the deal. 

The Court found that: “Acceptance of the offer is not required. The listing agreement clearly contemplated payment of the commission upon presentation of an offer at the full asking price.” 

As for the dual agency of the Broker in acting for both the Broker and purchaser, the Vendor argued that the Broker did not get written consent to the dual agency and that nullified the offer. The Court disagreed and said that it would be difficult to understand how an offer at full asking price could result in a breach of any fiduciary duty to the Vendor by the agent.

The Lessons:  

1. Review my Feb. 21, 2012 article in Property Biz for eight essential points to consider before entering into a listing agreement.

2. Be wary of signing a “standard form agreement” presented to you as it will invariably be drafted in favour of the party who is presenting it. It does not matter that it is a commonly used form of an agreement in a particular industry.  Let your lawyer review it BEFORE you sign.

3. Delete any wording in the form that suggests that the commission will be paid on any valid offer received and insert an acknowledgement that the commission will only be paid on successful completion of the sale of the property.

4. Try to insert an “out” clause should you decide to take the property off the market, but consider providing that such a clause reimburse the agent for its out-of-pocket costs for marketing the property and possibly some fee if the Broker brings an offer at the asking price that would otherwise be acceptable, as he/she is working for you and met the terms of the listing agreement.

5. Parties to a contract are subject to the doctrine of “good faith” and cannot disregard the terms.

Update: In my November 2013 ArticleA Breach of the “Quiet Enjoyment” Covenant – “Scents” and “Sensibility” –I discussed a B.C. case where the tenant was found to have been entitled to terminate its lease for breach of quiet enjoyment due to an “unpleasant odour” in the building and the landlord was ordered to pay $19,000.00.  In June, the landlord (Mr. Randy Strearman) in the case was informed of the B.C. Court of Appeal unanimous reversal of the decision on the basis that the tenant “was able to conduct her business on the premises, as was a successor business, and couldn’t prove any loss of sales or profits because of an odour”.  In addition, “… there was no evidence that the landlord derogated from his grant of exclusive occupancy without interference. The existence of the odour did not constitute a fundamental breach of the agreement, such that the tenant was justified in treating the agreement as repudiated. The odour did not deprive the tenant of the entire benefit of the agreement, particularly as the tenant was solely responsible for the maintenance and repair of the Premises under the express terms of the lease.”

Disclaimer: This article is for general information purposes only and not intended as or to be relied upon for legal advice. Consult with a lawyer for your unique situation.

[*If there is a general real estate or leasing related question you would like to see addressed in a future article in “The Legal Corner”, please contact me directly by e-mail at dgold@robapp.com with your suggestion. Not all requests can be accommodated.]

 

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Darrell Gold

About the Author ()

Darrell is a partner at Robins Appleby LLP and is responsible for the leasing component of its Real Estate Group. He has extensive experience and expertise in all aspects of commercial, retail, office and industrial leasing, lease enforcement and dispute resolution on behalf of landlords, tenants and property and asset managers. As well, his practice includes acquisitions and dispositions of commercial real estate and general commercial contracts. Author’s website: https://www.robinsappleby.com

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