Commission and One Year Holdover Period #172
CATEGORY: Legally Speaking
TAGS: Collecting Commission Prohibition Order
By Gerry Neely
One word in a listing contract meant the difference between failure and success for a licensee claiming commission based upon an offer made during a one year holdover period, which contained a condition removed after the expiration of the holdover period. The case is useful because it illustrates the often quoted remarks in cases interpreting the licensee's right to recover commission that recover depends entirely upon the wording of the provisions relating to commission.
The Ontario exclusive listing contract contained the following clause:
"This agreement to list shall expire at 11:50 pm on the 15th day of October, 1984. If the above property and/or business or corporate shares is sold, exchanged, leased or optioned by anyone within one year thereafter who has been made aware that the property is for sale through the marketing activities of you or your sub-agents, then I also agree to pay you a commission as aforesaid."
Prior to October 15, 1984, the owner entered into a conditional agreement with a prospective purchaser introduced by the licensee. The time for removal of the condition was extended several times into 1985 before the sale collapsed. The property was relisted with another agent, and on September 23, 1985, the owner and the purchaser signed another offer to purchase which was subject to financing being arranged by the same purchaser within 90 days. The condition was removed in November of 1985 and the sale closed in February, 1986.
The owner denied liability for commission on the basis that since the offer was conditional, no sale took place within the one year holdover period. The trial judge agreed with the owner, but the Ontario Court of Appeal mtook a different approach, an approach which centered around the significance of the word "option" in the listing contract. An option and a conditional agreement depend for their effectiveness upon the decision by the prospective purchaser whether to exercise the option of to remove the condition. It would have been inconsistent to have liability imposed upon the vendor to pay a commission upon an option granted during the period which was not exercised by the optionee until after the holdover period ended, and not be liable for a commission where a conditional offer entered into during the holdover period became binding after the period expired. The commission clause entitled the licensee to a commission.
In addition to the above quoted clause, the listing agreement provided that the commission would be paid only out of the sale proceeds. It is unlikely that the licensee's claim for commission would have been successful without this limiting provision, because the Court would have been reluctant to order payment of a commission if the sale failed to close.
The other interesting aspect of this case is the lengthy holdover period. The compliance guidelines produced by CREA in connection with the Prohibition Order suggested that a reasonable period for a holdover clause should be 80 days. An argument can be made that rather than fixing an arbitrary period, the circumstances should justify the reasonableness of the holdover period, even one for 12 months. The circumstances could include the value of the property and the duration and extend of the marketing activities of the licensee. The larger the value and the gretaer the extent of the marketing activities, the more reasonable it is that the holdover period should be longer to enable the licensee to benefit from a sale made to someone introduced to the property by the licensee before the expiration of the listing contract.1
Column 170 discussed a decision which held that the vendor's lawyer, rather than the purchaser's lawyer, was responsible for the preparation of the conveyancing documents. The case haas been appealed, but another case for which reasons for judgement in the Court of Appeal were handed down on March 26, 1991, shows the position the Court of Appeal will likely take on this question. An opinion by one judge is that where the costs of the transfer are borne by the purchaser then the purchaser's conveyancer is to prepare the transfer documents.2
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