By Martin Rumack
Last year I wrote an article on the essentials of agreements for commission (Commission agreement basics, REM, July 2013) that outlines the fundamental points all agents need to know about legislative requirements, format, payment structure and entitlement, amongst others.
Even though those basics are relatively straightforward, a commission agreement (as with all contracts) can be subject to interpretation, can be inadvertently vague in key respects or can be breached by any one of the parties to it.
All of this gives rise to disputes over commission entitlements, which unfortunately can end up in court.
No one wants to have to litigate. This is why it’s important that as an agent you learn as much possible from the experiences of those who wind up there. Viewed from the outside, these court cases indeed provide you with a convenient opportunity to learn – and avoid – the common pitfalls that surround the use of commission agreements in real estate transactions.
Here are some key points and examples taken from a handful of court decisions decided in the last few months alone:
1. Disclose and explain any dual agency. In Partners Realty Ltd. v. Morrow, 2014 ONSC 124 (CanLII), the agent, unbeknownst to the seller, was already committed under a buyer agency agreement to represent certain interested buyers. However, she pressed the seller to sign a listing agreement and did not introduce the parties until that agreement was in place.
The seller – who happened to be a corporate lawyer – claimed that she was “stunned” to learn that the agent was representing both the buyer and seller, and claimed this amounted to a breach of fiduciary duty for the agent’s failure to disclose her dual agency arrangement. The seller claimed she would not have listed with the agent had she known the complete situation.
The deal did not close because the seller changed her mind. The agent claimed her commission, nonetheless.
The court found that the agent did not review the dual agency provision with the seller and had not informed her in writing and prior to the offer being presented, as the commission agreement specifically required her to do. The seller, regardless of her level of legal sophistication, was entitled to full disclosure in writing of the dual agency arrangement; the agent’s failure to reveal that material fact disentitled her to the commission she would otherwise have been owed.
2. Make sure the holdover clause is clear. The recent case in Sutton Group v. Kim, 2014 ONSC 891 (CanLII) is just one of many examples of commission agreements in which the terms are needlessly vague, or where the seller has not been made aware of his or her obligations, to the point where it becomes a dispute.
The seller refused to pay the agent’s $50,000 in commission on the basis that he was unaware of the 90-day holdover clause in the listing agreement and that it was never explained to him. The seller also claimed that he secured the deal himself, because the buyers agreed to purchase the home two days after the six-month listing period expired. In reviewing the facts, the court examined the evidence of both agent and seller as to the discussions leading up to the signing of the listing agreement and also parsed the meaning of the terms “shown” and “introduced” as they were used in that document.
Ultimately, the court concluded that the seller was at least somewhat aware of the holdover clause and that the agent’s right to commission had been triggered when he took the buyers around the property during that initial six months. He was therefore entitled to his full commission on the sale, but it was a close call.
3. Paper your trail. It is a fact of life that some sellers will be unexpectedly difficult to deal with, no matter what the circumstances are. When dealing with such clients, it is important for you as an agent to pay scrupulous attention to detail, to fulfil your side of the commission agreement to the letter, and to document in detail those steps you have taken and your efforts to fulfil your obligations and duties.
This is precisely what saved the day for the agent in T. L. Willaert Realty Ltd. v. Fody, 2013 ONSC 7533 (CanLII). The agreement provided that commission was payable by the seller to the agent in any event, even if the agreement did not close, provided the non-completion was “owing or attributable to the seller’s default or neglect.” The agent delivered an offer for the full asking price; the seller then stopped responding to texts from the agent and disappeared for several days; subsequently the seller started getting nasty with the agent when he persisted in trying to reach him in order to deal with the offer. The deal did not close, with the seller claiming that the offer was not presented during the listing period.
The court disagreed and pointed out that it was difficult to imagine what more the agent could have done to present the offer. The steps he took that day included: 1) notifying the sellers’ common-law spouse of the existence of the offer; 2) faxing a copy of the offer to the seller’s lawyer; 3) texting the seller on several occasions; and 4) dropping off a copy in the seller’s mailbox at night. The truth was that the seller had simply changed his mind about selling and had not acted in good faith. The court concluded that the seller was not relieved of having to pay the agent’s commission.
4. Explain that deals that fall through may nonetheless result in commission being payable. If the agreement provides that commission is payable even if the potential sale gets aborted, make sure the seller understands that. This issue was discussed in both the Partners Realty and T. L. Willaert Realty cases, and it comes up more often than it should. Sellers should not be taken by surprise at the fact that they are paying commission regardless of whether the deal goes through and it’s up to you to explain this thoroughly.
This is just a small sampling of recent cases that show the various pitfalls that can arise in connection with a client’s appreciation and understanding of their rights and obligations under a listing agreement. As an agent, you owe it to your clients and to yourself to make sure there are no misunderstandings, nor any basis on which a client can claim they were not aware of their obligations. After all of your work, you do not want your commission to be at stake! Remember: The commission you save may be your own.
Toronto lawyer Martin Rumack’s practice areas include real estate law, corporate and commercial law, wills, estates, powers of attorney, family law and civil litigation. He is co-author of Legal Responsibilities of Real Estate Agents, 3rd Edition, available at www.lexisnexis.ca/bookstore. Visit Martin Rumack’s website at www.martinrumack.com.
