Compensation for Loss of Commission Under a List Back Agreement #391
By Gerry Neely
Legally Speaking 62 and 162 discuss cases involving paragraph 8 of the Multiple Listing Contract, which requires an owner to refer all enquiries and offers for the purchase of the listed property to the listing agent. An owner’s breach of this obligation gives the listing agent the right to damages for loss of commission, and the measure of damages is the commission that could have been earned. Neither these cases nor any others were mentioned in a Small Claims Court decision handed down in November 2005 concerning a brokerage’s claim for compensation for loss of commission.
The brokerage had listed two lots for sale and, when a developer’s offer to purchase was accepted, the developer signed a list back agreement for their sale when homes had been constructed on them. The agreement was not in favour of the brokerage, but was in favour of a non-legal entity with a name close to that of the brokerage. The listing representative reduced his commission by $4,050 to facilitate acceptance of the developer’s offer.
The developer ignored the list back agreement, sold the completed lots directly and refused to pay commission of $30,495. The brokerage sued for $10,000, the maximum amount in Small Claims Court. Since there was no doubt the developer breached his obligation to list the properties with the brokerage, the judge said the only question was how much compensation should be awarded as damage, and how it should be calculated.
He took into account the following concerns in reaching his decision: the list back agreement was apparently made with a non-legal entity; the agreement was more like a promise, because it wasn’t signed by the party accepting the list back; an incomplete reference to commission; the lack of evidence supporting the amount of commission that could have been earned; no adjustment for listing expenses; and no allowance for commissions to buyers’ agents.
The judge could have denied the brokerage’s claim on the grounds of uncertainty of terms and the lack of a legal entity as a party to the list back agreement, but that would have allowed the developer to benefit from his breach of the agreement. While that would have been inequitable, the judge must have concluded that, because of these concerns, it would also be inequitable to award the full $10,000 to the brokerage. Instead, the judge ordered the developer to pay to the brokerage $4,050 to restore the amount of commission reduced by the listing representative.1
The reasons for judgment did not state whether the parties agreed with appropriate wording that the Multiple Listing Contract and its terms would govern the list back. If it did, then the developer would have been in breach of paragraph 8. Even if it didn’t, one could argue that the Legally Speaking columns 62 and 162 cases should apply. The calculation of compensation should start with the amount of commission the brokerage would have earned if the developer had honoured his commitment, because that’s the amount the developer would have paid. The judge could then consider whether there were circumstances that warranted reduction of compensation, which was done in Legally Speaking 62.
|1.||Royal Pacific Realty Kingsway Ltd. v Gill, , 2005 BCPC O523.|
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