Nov 01, 1998

Exclusive Buyer’s Agent Contract, Commission and Limited Dual Agency Clauses (continued) #294


By Gerry Neely
B.A., LL.B

The preceding column (#293) set out the facts concerning a licensee’s claim for commission under an Exclusive Buyer’s Agent Contract (EBAC) and gave the first reason why the claim was unsuccessful. The second reason was linked to the licensee’s representation that signing a 12-month EBAC, before the offer to purchase the Yellowknife hotel was signed by Jung, was in Jung’s best interests.

The judge’s opinion was that before the EBACs were signed, the licensee had a duty to explain the alternative commission arrangements surrounding the potential purchase of the Yellowknife hotel. If the hotel owner had accepted the offer for $2,000,000 the licensee would have received a commission of $200,000, payable by Jung and Im. If the licensee had acted as listing agent or cooperating agent, his commission would have ranged between $30,000 and $65,000, all payable by the seller.

Jung, with this explanation, would then have had the opportunity to decide whether the benefit of the licensee’s services for a full year warranted payment of the higher commission. The judge said it was clear that the only reason Jung had first signed the EBAC was the specific transaction, and not the future benefit of the licensee’s services. The licensee’s representation that it was in Jung’s best interests was untrue and, therefore, the EBAC was void.

The judge also said that if the EBAC had been signed in June 1995 for a 12-month term, before the licensee introduced Jung to a piece of property Jung was interested in purchasing, the licensee would not have had the duty to disclose that he could have acted as the listing agent for the hotel owner.

The third reason is based upon the concept of limited dual agency as a means to avoid the conflict of interest arising from undisclosed dual agency relationships. Paragraph 6 requires a buyer’s agent, who also is the agent of a seller, to disclose the dual agency relationship and obtain the consent of the parties to act as their limited dual agent. If either refuses to consent, the buyer’s agent ceases to act as agent for the buyer but may continue to act for the seller.

The judge held that the licensee was acting as an undisclosed dual agent. The evidence which supported this decision was the licensee’s statement to the owner of the Yellowknife hotel that the licensee knew the offer of $2,000,000 was too low and that there would be no further negotiations.

The judge could have decided that the licensee, in deciding not to press for counter offers, was just being realistic. Instead, he concluded that the earlier relationship between the seller and the licensee, combined with the licensee’s decision not to press for a counter offer, was the result of the licensee’s reluctance to lose the goodwill of the owner as a potential contact and seller.1

The judge’s comments concerning Paragraph 6 are helpful. Firstly, he did not reject the concept of limited dual agency. He thought that it was at least an attempt to "address the fundamental issue of conflict of interest by ensuring that written notice of the existence of such conflict is provided to the buyer." This comment, although not binding on any other judge, is an encouraging endorsement of the policy behind the implementation of the limited dual agency concept. The problem for the licensee lay not in concept or the wording of Paragraph 6, but in the conduct of the licensee, as found by the judge.

The second comment was that Paragraph 6 was "perhaps unfair to the buyer," because of the buyer’s loss of agency representation when the parties failed to consent to limited dual agency.

The decision as to who would suffer the loss of agency representation, the seller or the buyer, was made in 1993 during the discussions of the contents of the proposed EBAC by a British Columbia Real Estate Association committee. No one could predict how long it would take before the public accepted the notion of contracting with a buyer’s agent under a written contract. However, the MLS® systems have made prospective sellers aware that they will be expected to enter into a written listing contract. The existence of this practice, and of the number of existing contractual arrangements that there would be between sellers and listing agents, led the committee to decide that the seller would be preferred when the parties did not consent to limited dual agency.

The option of adopting the legal profession’s conflict rules, which would require the agent to not act for either party, was discussed and rejected, enabling licensees to continue to double-end transactions.

 1. Paul and Lakefront Realty Ltd. dba Sutton Group v. Jung et al,, S.C.B.C., Kelowna Registry 34289, Reasons for Judgment, June 5, 1998.

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