Nov 01, 1998

Exclusive Buyer’s Agent Contract, Commission and Limited Dual Agency Clauses #293


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

At last, a decision which I believe reviews, for the first time, the terms of the Exclusive Buyer’s Agent Contract, particularly paragraphs 4 and 6 which deal with an agent’s remuneration and conflicts of interest, respectively. The decision provides some guidelines for licensees who often walk a fine line between balancing their duties to their clients and obtaining payment for the services they provide.

The case involved a licensee who was experienced in motels and hotels in the hospitality industry. His clients, Im and Jung, were business associates who were interested in either jointly or separately purchasing this type of property. In their first meeting in June 1995, the licensee advised Im and Jung of his preference to act exclusively as a buyer’s agent, explaining the difference between that and the more traditional real estate agent’s role that existed before the introduction of buyer agency.

Within two weeks of that meeting Im signed an Exclusive Buyer’s Agent Contract (EBAC), with a six-week term, as a prelude to a successful offer to purchase property shown to him by the licensee. The EBAC entitled the licensee to a fee of five per cent of the purchase price. Paragraph 4(b) required him to advise Im, before an offer was made, of the amount offered by the listing agent to a cooperating agent.

The fee the licensee would receive upon the completion of the purchase, after crediting the amount offered by the listing agent to the licensee, would significantly exceed the amount offered by the listing agent to cooperating agents.

In November the licensee escorted Im and Jung on a tour which took them to Yellowknife where the licensee introduced them to a hotel owner with whom the licensee had discussions in 1991 concerning the sale of the hotel. At that time, the owner had been willing to pay the licensee a commission of approximately two to three per cent if the licensee found a buyer for the hotel.

In December 1995 Im and Jung each signed 12-month term EBACs containing the identical commission structure referred to earlier. Each, therefore, contracted to pay five per cent of the purchase price of any property they bought during the term of each EBAC. The 12-month term was important to the licensee because he was aware that Jung had been dealing with another licensee in Alberta.

Im and Jung were prepared to sign the EBACs because they wanted to purchase the Yellowknife hotel. In addition, they relied upon the licensee’s assurances that they would benefit from the EBACs because he would be acting in their best interests only.

The licensee knew that the hotel owner wanted in excess of $3,000,000 but that an offer of around $2,700,000 might succeed. The buyers offered only $2,000,000, an offer which was rejected, as the licensee expected. The licensee told the owner that he knew the offer was too low and that ended any further negotiations.

Jung made one further offer on another property. This offer failed because the licensee’s commission, on top of the difference between the seller’s price and the amount Jung was prepared to pay, was too great. Jung had now concluded that the licensee’s commission structure was a barrier to a potential purchase.

In May 1996 he bought shares in a lodge which was listed with another agent who received a commission of $57,000, half of which was paid to the cooperating agent who introduced Jung to the property. The licensee sued Jung for a five per cent fee of approximately $99,000, on the basis that a legally enforceable Contract of Purchase and Sale had been entered into during the term of Jung’s EBAC. The licensee’s claim was dismissed for three reasons, all relating to the circumstances surrounding the Yellowknife offer.

The first reason was the failure of the licensee to advise Jung of the amount of commission which might be available from the hotel owner to Jung by way of setoff against the five per cent fee to be paid to the licensee. Paragraph 4(b) of the EBAC serves two purposes, the first of which is to enable the buyer to assess the total cost of a proposed purchase after taking into account net commission costs. The second is to prevent a licensee from obtaining two commissions by crediting to the buyer the amount otherwise payable to a cooperating agent.

(To be continued in Column #294)

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