Commission on a Sublease #148

Jan 01, 1990

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

A company held a very profitable sublease on commercial premises for a remaining term of approximately two years, with four successive rights of renewal of five years each. It wanted to sub-sublease the premises and told an agent that it would pay a commission to the agent if he found a potential tenant who was prepared to enter into a lease for "up to twenty-two years." By letter to the company, the agent said with respect to its commission, that,

We understand that in the event of successfully concluding a lease, we are eligible for fees in the amount of 5% of the first year's rent and 3% of any subsequent year's rent.

The potential tenant agreed to take the property for the whole of the twenty-two years following the exercise of all of the options, entitling the agent to a commission.

So what can there be to argue about? Well, the company agreed that while it owed a commission, payment of the commission was to be made as and when the rent was received by it. It based this conclusion upon its interpretation of the contents of the letter from the agent, including the commission clause prepared by the agent. The company said that the reference in the letter from the agent to it of a lease of "up to 22 years," plus the plural use of the word "fee" meant that commission was payable out of or from rent as it is paid.

The agent argued that "in the event of" meant "upon the happening of a certain event," namely the conclusion of a lease, and "eligible" meant "entitled to payment." Once the sub-sublease was obtained, there was nothing more for the agent to do.

The Judge's decision that the company's interpretation of the contract was wrong, was fortified by the evidence of expert witnesses that none had heard of commissions being paid from a rental income stream. It was acknowledged that in some instances where options to renew might or might not be exercised, commissions were only payable upon the exercise of the options. In holding for the agent, the Judge said that payment of the commission when the work was done was not only consistent with the parties' reasonable expectations, but also consistent with thc universal usage or custom of the real estate industry in British Columbia.

The argument would have been avoided if the agent had provided for payment to be made in full upon the execution of the sub-sublease.l

* * *

''Deemed'' in the legal sense, means an assumption that something is a fact, when it may or may not be one. It is a word which should be used only with the greatest of care, as the following case illustrates.

A Nova Scotia licensee who was advised by a prospective purchaser that financing was not a problem, inserted the following clause in the printed standard form.

The purchasers further agree to arrange at their own expense a first mortgage at their own expense. This mortgage to be deemed arranged in fifteen banking days, failing this the offer becomes null and void and deposit to be returned in full.

During the fifteen day period, the purchaser discovcred from an engineer's report prepared at the request of the purchaser's bank, that the cost of renovations would be excessive. The purchaser did not notify the vendor within this period that he could not arrange financing.

The vendor sued for damages. The purchaser argued that the clause in question was void for uncertainty because of the conflict between the legal meaning of the word "deemed," and the words which followed in the latter part of the second sentence. While that might have been what the parties had expected, the Judge had to interpret the words provided by the agent.

Although the purchaser's obligation to notify the vendor was not expressed in this clause, the Judge held that the purchaser had to give notice within the period, of his inability to obtain financing, to avoid the consequences of the meaning of the word "deemed." His failure to do that meant the contract was interpreted as if the mortgage had been arranged.

If the word "deemed" is used in conjunction with the standard form Contract of Purchase and Sale, the "waived or declared fulfilled clause" should be examined to decide whether it should be eliminated or how it should be modified.2

  1. Professional Realty Corporation Ltd. v. H.Y. Louie Co. Ltd., SDBC Vancouver Registry C888597, Reasons for Judgement dated Nov. 1, 1989.
  2. Gravee v. Norfolk Motor Hotel (1974) Ltd., A.P.R. (2nd) p. 98.

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