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Agent sues for commission on unaccepted offer

Often, an agreement to purchase real estate will have a conditional period to allow for various steps to be completed by either the buyer or seller. 

An appeal decision in Ontario’s Divisional Court affirmed that a party cannot generally sue for compensation under an agreement until it is firm and binding. This principle applies to real estate agents seeking to recover a commission as well as the parties to the conditional agreement, as demonstrated by Covenoho v. HomeLife Response Realty Inc.

The decision arose from a dispute between a real estate agent and two brokerages. In January 2019, the agent executed an Independent Salesperson’s Agreement with a brokerage, Right at Home, and was provided with a salesperson’s manual.

In June 2020, a property in Mississauga, Ont. was listed for sale on MLS for $799,800.00. The agreement to list the property was signed by the listing brokerage, Homelife, and the owners of the property.

The agent presented a conditional offer on behalf of some prospective buyers to purchase the property for $805,000. The offer contained conditions for the buyers to arrange financing, conduct a home inspection, and confirm they could obtain insurance.

If the property had been sold to the agent’s clients, she would have been entitled to a portion of the sales commission because she would have been the cooperating broker. Unfortunately for the agent, the sellers did not accept the conditional offer. Despite this development, the agent demanded that Homelife pay her the cooperating brokers’ portion of the real estate fees. Homelife understandably took the position that it was not required to pay the agent any commissions since there was no sale.

In response to a threat by the agent to commence a lawsuit against Homelife for the commissions, the vice president of legal for Right at Home advised that she did not have the standing to bring the lawsuit and that she was required to withdraw it. Further, the agent was advised that Right at Home believed they did not have any claim against Homelife for unpaid commissions either.

Undeterred by these developments, the agent commenced a lawsuit for the commissions. Shortly after, her Independent Salesperson’s Agreement was terminated by Right at Home.

In December 2021, a deputy judge of the Ontario Small Claims Court dismissed the agent’s claims against both brokerages. The agent then appealed to the Divisional Court.

On appeal, while the agent raised numerous issues about the real estate industry in general, the court focused on what actually took place between the parties from a legal standpoint.

The appeals court found that there was never a binding purchase and sale agreement between the buyers and sellers. For parties to agree on the contract terms, they must have reached the same understanding as to the essential terms of the agreement. 

In this case, the sellers had listed their property for sale, which was, at most, an expression of interest in selling and an invitation for offers.

The agent argued that her clients’ conditional offer to purchase the property was an “interim acceptance” of the seller’s offer to sell. However, this position was contrary to Canada’s well-understood principles of contract law. 

In the court’s words, “a conditional offer is not a valid offer.” An offer conditional on certain events or conditions coming to pass may only be completed if those happen. Here, the buyers may not have been able to obtain financing or insurance, in which case they would not have been required to complete the purchase.

The agent argued that Right at Home was negligent in not suing Homelife to obtain her commission. The court rejected that argument since, under the listing agreement, even if the sellers had an obligation to accept an offer such as the one tendered by the agent’s clients, the only party that could enforce that obligation was Homelife. The listing agreement was a contract between Homelife and the sellers. The agent and Right at Home had no rights under the listing agreement. Nothing in any of the applicable rules, regulations or policies imposed a legal obligation on the sellers to accept the offer.

The agent asserted that she was being “denied access to justice” because her claim against Homelife was not pursued by Right at Home. However, a person who does not have a valid claim is not being denied access to justice simply because a third party refuses to advance that claim on their behalf. The court noted that Right at Home was within its rights not to advance the agent’s claim and to terminate her position under the Independent Salesperson’s Agreement. The agent was not denied access to justice since her claim was adjudicated at both the trial and the appeal level. As a result, the appeal was dismissed by the Divisional Court.

The decision shows that an agent is not generally entitled to recover a commission that would have been payable had a conditional offer become firm and binding. This result may be unfortunate to an agent who puts a substantial amount of time and effort into assisting clients with putting forth a conditional offer. Still, it reflects well-established principles of contract law. Absent a binding contract, formed by the fulfilment of all outstanding conditions, there are likely no valid grounds for enforcing a commission payment, and one should not have any reasonable expectations of compensation until an offer becomes firm.