Assignment of Commission to Listing Agent #311
CATEGORY: Legally Speaking
TAGS: Collecting Commission
By Gerry Neely
A licensee with a deposit that is less than the commissions has always run the risk of either losing the remainder of the commission, or being forced to sue for it, because an unhappy seller instructs his lawyer or notary public (the conveyancer) to pay all of the proceeds of sale to the seller. The avoidance of that risk is one of the reasons the ML Contract includes paragraph 6, in which the seller has agreed to assign irrevocably to the listing agent from the proceeds of sale, the remuneration due to it.
However, for that assignment to be effective, notice of it must be given to the conveyancer from whom payment of the commission is expected. The question of what constitutes effective notice to a conveyancer was examined in a 1986 Ontario case where the contract for the sale of the property, contained an irrevocable instruction to the seller’s solicitor to pay commission directly to the agent from the proceeds of sale any commission remaining payable after the deduction of the deposit.
Notice of the amount of the commission, together with a copy of the contract, was forwarded to the seller’s solicitor whose attention was directed to the authorization for direct payment of commission to the agent. The seller revoked his instructions and received all of the sale proceeds from his solicitor, who was held to be personally liable for payment of the commission to the agent.1
This decision supports the practice of giving notice of the amount of the commission and sending a copy of the standard form contract of sale to the conveyancer responsible for distribution of commission, provided that paragraph 22 is unchanged. This paragraph gives the conveyancer notice of the seller’s agreement to pay a commission as per the Listing Contract and contains the authorization for the buyer and anyone acting on behalf of the buyer or seller to pay the commission from the cash proceeds of sale. The notice would be ineffective if the authorization had been deleted, which is unlikely. What is more likely, is that the substance of paragraph 22 is absent from a non-standard contract used by the parties, for example, a commercial contract prepared by lawyers for the parties.
Paragraph 22 does not state that it is irrevocable. In my experience a conveyancer never receives a copy of the ML Contract and few are aware of paragraph 6. This means that the conveyancer, whose only knowledge of the documents signed by the seller is the contract of purchase and sale, would act upon a seller’s revocation of paragraph 22 and pay the balance of funds to the seller.
The twin possibilities of a revocable paragraph 22, and the use of a non-standard contract contributed to VREB’s decision to change the basis upon which commissions are distributed. The first change is the recognition that since the seller is responsible for the payment of commission, it is the seller’s conveyancer who should be responsible for payment of commission at the seller’s cost.
No information concerning the commission is given to the buyer’s conveyancer, which leaves the calculation of the commission to be deducted from the proceeds of sale to be done by the seller’s conveyancer. Removing the buyer’s lawyer from the commission payment loop avoids the question of what authority the co-operating agent had to instruct a buyer’s conveyancer to distribute a commission which had been assigned to the listing agent.
Where a listing and co-operating agent are involved in a transaction, both sign a confirmation of commission agreement be delivered to the seller’s conveyancer, which refers to the assignment of commission to the listing agent. In the letter sent by the listing agent to the seller’s conveyancer, in which is enclosed the contract of purchase and sale and the confirmation of commission agreement, the listing agent draws the attention of the conveyancer to the assignment in its favour. The same information is provided by a listing agent who double-ends a transaction.
The co-operating agent sends the deposit in excess of the co-operating agent’s share of the commission, to the seller’s conveyancer upon stakeholder undertakings, and forwards to the buyer’s conveyancer the copy of the contract of purchase and sale.
This system has been in effect for about two years and appears to be working to the satisfaction of both licensees and conveyancers and without complaint from the public.
|1.||Family Trust v. Morra, 39 R.P.R. 187 (See Column 92).|
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