Effective Cause #492
CATEGORY: Legally Speaking
TAGS: Multiple Listing Contract
What if a buyer is introduced to a property, or to a seller, during a multiple listing, but later enters a legally enforceable contract to buy the property after the listing expires?
The standard Multiple Listing Contract (MLC) preserves entitlement to commission in two stages, subject to one overriding consideration. First, if the seller and buyer enter their contract within the first 60 days after the MLC expires, the brokerage is entitled to commission.1 Second, if the seller and buyer enter their contract after that 60-day point, the brokerage must prove that it is an effective cause of the sale.2 The brokerage need only be an effective cause; not the effective cause. Yet, no commission is payable in either case if, in the meantime, the seller lists with another licensed brokerage and the property sells during the term of the other brokerage's listing contract.3
We call these provisions holdover clauses, because they hold over the right to commission after the listing period expires. Clause 1A in the MLC specifies the expiry date. Note, expiry of the contract is not the same as cancellation.
An MLC expires when the listing period runs to its conclusion at the expiry date.4 This can occur where the listing runs for the whole of the listing period as originally contemplated, or where, by agreement, the seller and brokerage shorten the listing term by amending the contract to expire sooner.
When is a REALTOR® an effective cause of a sale? Merely introducing a buyer is not enough. The REALTOR®'s services must be instrumental in bringing about the sale. The REALTOR® must show an unbroken link between the licensee's efforts and the transaction in question. Determining whether there's a break in the chain requires objectively looking at the evidence as a whole, rather than relying on a party's own views.5
In Oceanview Realty Ltd. v. Hiltz, the sellers entered an MLC with the listing brokerage. One of the sellers was a licensee.6 During the listing, a cooperating brokerage's buyer agent presented the buyer's offer, which the sellers accepted. Even though the deal collapsed for lack of financing, the buyer agent continued to work with the buyer to obtain funding. Meanwhile, the listing expired. Ten days after the listing expired, the licensee seller persuaded the buyer to discharge his buyer agent by groundlessly disparaging that buyer agent's competence. Now dealing directly with the buyer, the sellers contracted to sell their property to the buyer in terms nearly identical to those previously negotiated by the buyer agent. Roughly 76 days after the listing expired, the sale completed. The listing brokerage waived its commission, but assigned its right to claim commission to the cooperating brokerage, which sued the sellers. The buyer agent had continued to work with the buyer until the seller intervened. The court found that the buyer agent was an effective cause of the sale, ordering the sellers to pay the cooperating brokerage's commission.
A buyer's liability for commission may also turn on proof of effective cause. In Royal Pacific Realty Corp. v. Cressey Projects Corp., a brokerage sued to collect nearly $443,000 in commission for its licensee's role in assembling three adjacent properties for a developer.7 The issue was whether the licensee was the effective cause of the developer's purchases. Previously, the developer agreed to pay a commission if the licensee presented, on the developer's behalf, a written offer that was accepted and completed. Over a five-month period, the licensee presented various offers for each of the properties, but none were accepted. During the next six months, there was no evidence of any active involvement by the licensee. Then, through a series of events and other brokers who had nothing to do with the licensee, the developer quickly bought all three properties. The licensee played no part in these later transactions. The court dismissed the brokerage's claim, because there was a clear end to the licensee's role in negotiations.
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