Future Commission Not Deductible From Purchase Price; Deposit Lost — Failure to Act Expeditiously #398
CATEGORY: Legally Speaking
TAGS: Commission Conditional Clause Deposits
By Gerry Neely
A half-interest in a home is owned by a live-in resident, while the other half-interest is owned by non-residents. All owners had been ordered to sell and divide the net proceeds, unless the resident owner bought the other owners’ interest. Should payment of a possible future commission reduce the price to be paid by the resident owner?
The resident owner argued that half of the commission should be deducted from the price to be paid by her. She claimed not doing so would be unfair, as she would pay 100 per cent of the future commission. The judge rejected this argument as too speculative—no agent may be involved in a future sale, commission rates may vary or she may pass away while still owning the house.1
A conditional buyer’s attempt to recover a $40,000 deposit held by an owner failed and resulted in an order to pay $95,000. The order arose from the owner’s sale of the property in question at a lower price than the buyer had agreed to pay.
The buyer, a BMW car dealership, agreed to start the process within three weeks of acceptance of the offer, and to “expeditiously” obtain all necessary municipal approvals and permits. The conditional clauses in the offer were approvals for rezoning, a development permit and a land use designation for the purposes of the dealership. The buyer moved quickly and, just slightly under four months before closing, the city’s planning commission approved the rezoning application and recommended it to city council for approval. At this stage, a development permit application accompanied by the building plans would have been accepted for consideration by the city administration.
The buyer didn’t apply for a development permit at this point, because of professional advice to wait until city council signed the rezoning bylaw. In addition, the building plans had to meet BMW design standards, and plan preparation didn’t commence until a month after planning commission approval. The buyer stopped the preparation of plans when it became apparent there was insufficient time left to obtain the permit, and then sued for the deposit.
The judge decided there were three reasons why the buyer was in breach of his covenant to act expeditiously. Considering the relatively tight deadline, the buyer should have begun preparing the building plans earlier (author’s note: if the delay was to avoid throwing away the preparation cost if the application was rejected, the buyer at least should have been ready to proceed once approval was given). The professional advice would likely have differed if the buyer had told the advisor of the deadline. City council approval of the rezoning bylaw was given six weeks before closing—enough time to file the permit application and decide, based on feedback from city staff, whether to waive the permit condition and complete the purchase.
The buyer was ordered to pay the owner $95,000, less the deposit and other small adjustments. The result might have been the same if the agreement to act expeditiously had been omitted, because courts would imply a buyer’s duty to use best efforts to satisfy a condition. However, the expressly worded, written covenant should focus a buyer’s attention on this obligation.2
|1.||Koscak and Koscak v. Koscak, SCBC, New Westminster Registry, Reasons for Judgment, May 20, 2005.|
|2.||504148 Alberta Ltd. v. Seventies Homes Canada Inc., 2005 ABQB 382.|
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