5 things to know about the non-payment of a commission to a Real Estate broker
In a real estate transaction, the following are five (5) things to know for the broker before he claims his commission:
- Whether there is a written contract:
- When using the services of a real estate broker, The Real Estate Brokerage Act, requires a brokerage contract for any purchase, sale or rental transaction. This contract must be written for any residential transaction.
- In terms of a commercial transaction, the written contract is not mandatory. Although this option is preferred, it is still possible to support the validity of a verbal contract when the elements below have been discussed between the two (2) parties:
- Length of the contract;
- Quality of the building;
- Revenus and expenses;
- Terms of sale;
- Price;
- Knowledge by the seller that the broker works for a real estate agency;
For more information about the validity of a brokerage contract, please visit : https://schneiderlegal.com/commercial-real-estate-brokers-and-commissions/
- The efficient cause of the transaction:
- Whether it is a verbal contract or a written contract without an exclusivity clause, the Supreme Court of Canada in the case Burchell[1] established that the broker can claim a commission when he can prove that he is the efficient cause of the transaction.
- The broker has the burden to prove that he is indeed the efficient cause of the transaction (2803 c.Q) by demonstrating that he found the prospective-buyer and introduced him to the property. Therefore, this prospective buyer will be considered as an ‘’interested person’’[2].
- Exclusive brokerage contract :
- The real estate broker is entitled to a commission for any transaction initiated within the term of an exclusive brokerage contract. An exception would be if his contractual obligations are not fulfilled.
- On the contrary, if the brokerage contract does not include an exclusivity clause, the efficient cause principle will apply.
- Based on section 27(3) of the Real Estate Brokerage Act, a commission should be paid for a transaction taking place within an additional 180 days after the expiration of the contract if the broker is the efficient cause of the transaction*.
- An exception can be raised if the seller signed a new exclusive contract with another broker.
* Each case is based on the facts and circumstances and depends on whether it is a residential or a commercial transaction
- Principle of ‘’independent transaction’’ :
- The principle of independent transaction can be a barrier for a broker in order to have the right to claim a commission. Certain key points define an independent transaction:
- An independent transaction
- Made in good faith within the parties
- In the ordinary course of business
- For example;
- An accepted promise to purchase fails after the financing condition was not met.
- A year later, the same terms of sale respecting the three (3) criteria cited could be considered as an independent transaction to close the sale even if the terms are not modified.
- However, if the terms of sale are modified, it does not necessarily imply an independent transaction.
For more information on independent transaction, please visit:
https://schneiderlegal.com/commercial-real-estate-brokers-and-commissions/
- The Real Estate Agency as a contractual party:
- Based on the Court of Appeal case Ohannessian[3], an agency can assign the commission to his broker in order to claim personally the commission. In this case, the court of first instance decided that the broker was deemed the efficient cause of the transaction. Before the court of appeal, the agency assigned the commission to the broker and the Court of Appeal confirmed the first instance decision.
- The initial parties’ contractual link for the brokerage contract are the Real Estate Agency and the seller, meaning that the commission is initially a right to claim by the agency and not by the broker personally.
- Generally, the amount granted by the court represents the whole commission stipulated in the contract.
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[1] James T. Burchell c. Gowrie and Blockhouse Collieries, [1910] A.C. 614
[2] Services immobiliers Gestram inc. (Sotheby’s International Realty Quebec) c. Ohannessian 2014 QCCS 5918
[3] Ohannessian c. Services immobiliers Hestram inc. (Sotheby’s International Realty Quebec) 2016 QCCA 1162
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The above noted text should not be construed as providing legal advice or a statement of your claim. The process highlighted above are merely parameters and barometers and do not constitute any warranties and guaranties with regards to your file at hand. We strongly recommend that you seek legal advice with a licensed attorney from the Barreau du Quebec or a notary at the Chambre des Notaires. Each case must be seen and analysed on its merits as the legal process may be complex and cumbersome.
