Nov 01, 1998

Commission, Defaulting Buyer, Commission Payable to Listing Agent #297


By Gerry Neely
B.A., LL.B.

When a buyer defaults and the listing agent sues the seller for commission, there have been two lines of legal thought as to whether the listing agent should succeed. The first is "the ordinary understanding of mankind" that when a homeowner employs an agent to find a buyer, the commission is payable out of the sale price, only if the sale completes.

If the agent expects to receive a commission even if the buyer defaults, that is out of the "ordinary understanding." Therefore, before the listing contract is signed, the agent's expectations should be made clear to the homeowner - so clear that it is apparent that the homeowner understands commission will be payable upon a buyer's default.

The second approach is that commission contracts are to be interpreted according to the law, which governs all contracts and all questions of agency. Therefore, the agent's entitlement to a commission depends upon the true construction of the terms of the Listing Contract.

In one case in which a licensee was suing for commission, three Listing Contracts had been signed by a seller, each containing the usual clause that a commission is earned if a binding Contract of Purchase and Sale is entered into during the term of the agreement. The seller accepted two successive offers from the same buyer, during the terms of the second and third Listing Contracts. Each time the buyer was granted extensions upon payment of additional deposits and each time the buyer defaulted.

The seller received a total of $170,000 in forfeited deposits and paid a part commission on the first contract. Upon the seller's refusal to pay a commission on the second contract, on the basis that no sale had been concluded, the agent sued for commission.

After considering both approaches the judge concluded that the second approach was the law in Canada and that, on the interpretation of the wording of the Listing Contract, the agent Was entitled to the commission. In doing so, the judge made a point that the seller was experienced enough to have his solicitor witness his signature on two of the three Listing Contracts. The seller had the opportunity to, and probably did, obtain legal advice.

In coming to this decision, the judge made the following remarks: "I do not wish to conclude these reasons without remarking that in my view it would be a wise agent or REALTOR who informs a prospective client as to their potential obligation to pay a commission given the form of the wording contained in this standard form listing contract in the event of default, whether by purchaser or by vendor."

This is significant because it suggests that if the licensee had not made it clear that he expected to be paid a commission even if the buyer defaulted, and the seller was a neophyte who acted without legal advice, the judge would have leaned toward accepting the first approach and denied the agent's claim for commission.1

The present Condominium Act, which has 133 sections in 51 pages, is being replaced by the Strata Property Act, which has 322 sections in 129 pages. This means that a major relearning experience lies ahead. Comments about changes follow, not necessarily in order of importance.

Apart from some exceptions, a strata corporation will only be able to restrict rentals by either prohibiting all rentals or by limiting the number, percentage or period of times residential strata lots may be rented. One exception is a rental to a member of the owner's family, because that term will be defined by the regulations. A new rental restriction bylaw does not take effect until the earlier of the year after the bylaw is passed, or one year after the tenant occupying a strata lot when the bylaw was passed vacates it.

A bylaw prohibiting a pet or restricting age does not apply to a pet or to the persons in residence at the time the bylaw is passed.

(To be continued in Column # 298)

 1. Kellner v. Strickland, 16 R.P.R. (3d), p. 125.

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