Question: If a deal fails to close, is the commission still payable?
Answer: Yes, because that wasn’t the trigger for payment.
Question: What was the trigger for payment?
Answer: An acceptable Offer was good enough.
Let’s have a look at the standard commission clause in the OREA standard form Listing.
Commission Clause
“2. COMMISSION: In consideration of the Listing Brokerage listing the Property, the Seller agrees to pay the Listing Brokerage a commission of ……………% of the sale price of the Property or ………………………………………………………………..for any valid offer to purchase the Property from any source whatsoever obtained during the Listing Period, as may be acceptable to the Seller. The Seller authorizes the Listing Brokerage to co-operate with any other registered real estate brokerage (co-operating brokerage) and to offer to pay the co-operating brokerage a commission of…………….% of the sale price of the Property or…………………………………………………………………………. out of the commission the Seller pays the Listing Brokerage. The Seller further agrees to pay such commission as calculated above if an agreement to purchase is agreed to or accepted by the Seller or anyone on the Seller’s behalf within ……………………….. days after the expiration of the Listing Period (Holdover Period), so long as such agreement is with anyone who was introduced to the Property from any source whatsoever during the Listing Period or shown the Property during the Listing Period. If, however, the offer for the purchase of the Property is pursuant to a new agreement in writing to pay commission to another registered real estate brokerage, the Seller’s liability for commission shall be reduced by the amount paid by the Seller under the new agreement. The Seller further agrees to pay such commission as calculated above even if the transaction contemplated by an agreement to purchase agreed to or accepted by the Seller or anyone on the Seller’s behalf is not completed, if such non-completion is owing or attributable to the Seller’s default or neglect, said commission to be payable on the date set for completion of the purchase of the Property. Any deposit in respect of any agreement where the transaction has been completed shall first be applied to reduce the commission payable. Should such amounts paid to the Listing Brokerage from the deposit or by the Seller’s solicitor not be sufficient, the Seller shall be liable to pay to the Listing Brokerage on demand, any deficiency in commission and taxes owing on such commission. All amounts set out as commission are to be paid plus applicable taxes on such commission.”
That was the clause. Obviously, you will have to read it a few times in order to properly understand it.
Let’s review it in detail: (headings in Italics are mine as are comments)
2. COMMISSION:
Consideration and Contract Formation
In consideration of the Listing Brokerage listing the Property,
The Amount
the Seller agrees to pay the Listing Brokerage a commission of ……………% (usually a % in most cases) of the sale price of the Property or ……………………………………………………………………………………………………………………
This could be a specified amount.
for any valid offer to purchase the Property
This is the trigger, the commission is for the “OFFER”.
from any source whatsoever
it doesn’t matter who brings the Offer.
obtained during the Listing Period,
this is from the date of commencement to the expiration date.
as may be acceptable to the Seller.
The Offer MUST be acceptable to the Seller. This gets around substantially underpriced properties. How do we know that? Well, the Seller signed it. So, that’s evidence right there.
Co-operating Commission
The Seller authorizes the Listing Brokerage to co-operate with any other registered real estate brokerage (co-operating brokerage)
and to offer to pay the co-operating brokerage a commission of…………….% of the sale price of the Property or………………………………………………………………………….
out of the commission the Seller pays the Listing Brokerage.
This is the amount being offered to the Buyer’s Brokerage. So, assume that the overall percentage is 5%, then, the Listing Brokerage offers 2.5% to the Buyer’s Brokerage, thereby reducing its own entitlement to 2.5% as well.
Holdover Period
The Seller further agrees to pay such commission as calculated above if an agreement to purchase is agreed to or accepted by the Seller or anyone on the Seller’s behalf within ……………………….. days after the expiration of the Listing Period (Holdover Period),
The holdover period is often 90 to 180 days, or 365 days in the case of commercial transactions.
so long as such agreement is with anyone who was introduced to the Property from any source whatsoever during the Listing Period or shown the Property during the Listing Period.
This holdover commission is payable with respect to any Buyer who was:
- Introduced during the listing period, and
- Bought during the holdover period.
Exception
If, however, the offer for the purchase of the Property is pursuant to a new agreement in writing to pay commission to another registered real estate brokerage, the Seller’s liability for commission shall be reduced by the amount paid by the Seller under the new agreement.
If there is a new Listing charging 5%, then no payment is required. If the new Listing charges 3% in total, then we have a 2% shortfall. That means the Buyer cannot simply do an “end run” in order to save money. So, this extra 2% is payable to the first Listing Brokerage.
The Seller further agrees to pay such commission as calculated above even if the transaction contemplated by an agreement to purchase agreed to or accepted by the Seller or anyone on the Seller’s behalf is not completed,
This means that the commission is payable for non-completion. That was already a complete thought.
if such non-completion is owing or attributable to the Seller’s default or neglect,
This really should be the start of a new sentence but it just contained a comma. This should be read with the next group of words, namely the timing for payment.
When Payable
said commission to be payable on the date set for completion of the purchase of the Property.
Deposit Goes to Commission
Any deposit in respect of any agreement where the transaction has been completed shall first be applied to reduce the commission payable.
Commission Payable Exceeds Deposit(s)
Should such amounts paid to the Listing Brokerage from the deposit or by the Seller’s solicitor not be sufficient,
Obligation to Pay Deficiency
the Seller shall be liable to pay to the Listing Brokerage on demand, any deficiency in commission and taxes owing on such commission.
HST is in Addition
All amounts set out as commission are to be paid plus applicable taxes on such commission.
Comment
You will see that the commission is payable in the event that the Seller defaulted. That what the clause says! Also, it’s payable in the event that the Buyer defaulted. That’s always the case. The Seller sues the Buyer for failing to complete the deal and adds the Listing Brokerage’s commission to their losses.
However, I do admit that the wording could have been better in the Commission clause.
Brian Madigan LL.B., Broker