Is this even possible?
In this situation, the Cooperating Brokerage was not paid its commission in full as provided in the MLS Listing.
So, the Brokerage sued the Seller/Owner directly.
How did they do that?
Let’s have a look at the MLS rules which apply.
Rule 710 states that the Offer must be accepted in order to trigger the payment of the cooperating Brokerage’s commission. That’s different from the Listing Agreement which indicated that an Offer alone which met the terms of the Listing would be the trigger for commission payment.
However, again, it doesn’t say the deal must close, nor does it consider the issue of conditions.
Rule 760
R-760
When the full commission is not paid to the Listing Brokerage in accordance with the amount stated on the MLS® Listing Agreement (or as amended, if applicable), the Listing Brokerage and the Co-operating Brokerage shall decide whether to pursue legal or other action against the Seller and/or others in connection with the collection of the balance of the commission. If they agree to pursue a claim they will share costs of the claim on a basis proportionate to the sharing of commission unless they otherwise agree in writing.
If the Listing Brokerage does not agree to pursue a claim as provided in the immediately preceding paragraph, the Co-operating Brokerage may, within thirty (30) days of the closing of the transaction, by written notice (the “Notice”) to the Listing Brokerage requiring the Listing Brokerage to either (a) make immediate payment to the Co-operating Brokerage of the full amount of the commission payable to the Co-operating Brokerage indicated on TREB’s MLS® System (the “Co-operating Brokerage’s Commission”) or (b) take such steps as are necessary for the Co-operating Brokerage to pursue a claim (a “Claim”) for the commission provided for in TREB’s MLS® Listing Agreement (the “Full Commission”).
The Listing Brokerage shall, within ten (10) days following receipt of the Notice (the “Notice Period”) (a) either pay the Co-operating Brokerage’s Commission or (b) take the necessary steps in writing in all circumstances for the Co-operating Brokerage to pursue a Claim. Such steps may include but shall not necessarily be limited to permitting the Co-operating Brokerage to sue in the name of the Listing Brokerage and/or an assignment for nominal consideration by the Listing Brokerage to the Co-operating Brokerage of the debt represented by the unpaid commission provided for in TREB’s MLS® Listing Agreement.
If the Listing Brokerage fails to respond to the Notice within the Notice Period or if the Listing Brokerage elects to take steps to enable the Co-operating Brokerage to pursue a Claim but thereafter fails to take all steps reasonably necessary to facilitate the Claim, the Listing Brokerage shall be deemed to have elected to pay the Co-operating Brokerage’s Commission to Co-operating Brokerage and shall forthwith make such payment.
If Co-operating Brokerage pursues a Claim, it shall have sole carriage of the Claim, including, without limitation, the right to select and instruct counsel, to accept any settlement and compromise of the claim and to discontinue the claim at any time. All costs incurred by Co-operating Brokerage in connection with pursuing a Claim shall be solely for the account of the Co-operating Brokerage. Any costs incurred by the Listing Brokerage in facilitating the Claim will be solely for the account of the Listing Brokerage.
All amounts actually received by the Co-operating Brokerage as result of pursuing a Claim shall be applied to the extent available first to the Co-operating Brokerage’s costs of pursuing the Claim, second to the satisfaction of the Co-operating Brokerage’s Commission (including any HST thereon) with any amount remaining thereafter to be shared 50% to the Co-operating Brokerage as compensation for having carriage of the claim and 50% to the Listing Brokerage.
Rule 760 Reviewed in Detail
R-760
When the full commission is not paid to the Listing Brokerage in accordance with the amount stated on the MLS® Listing Agreement (or as amended, if applicable),
the Listing Brokerage and the Co-operating Brokerage shall decide whether to pursue legal or other action against the Seller and/or others in connection with the collection of the balance of the commission.
If they agree to pursue a claim they will share costs of the claim on a basis proportionate to the sharing of commission unless they otherwise agree in writing.
If the Listing Brokerage does not agree to pursue a claim as provided in the immediately preceding paragraph,
the Co-operating Brokerage may,
within thirty (30) days of the closing of the transaction, by written notice (the “Notice”) to the Listing Brokerage requiring the Listing Brokerage to either
(a) make immediate payment to the Co-operating Brokerage of the full amount of the commission payable to the Co-operating Brokerage indicated on TREB’s MLS® System (the “Co-operating Brokerage’s Commission”) or
(b) take such steps as are necessary for the Co-operating Brokerage to pursue a claim (a “Claim”) for the commission provided for in TREB’s MLS® Listing Agreement (the “Full Commission”).
The Listing Brokerage shall, within ten (10) days following receipt of the Notice (the “Notice Period”)
(a) either pay the Co-operating Brokerage’s Commission or
(b) take the necessary steps in writing in all circumstances for the Co-operating Brokerage to pursue a Claim.
Such steps may include but shall not necessarily be limited to permitting the Co-operating Brokerage to sue in the name of the Listing Brokerage and/or an assignment for nominal consideration by the Listing Brokerage to the Co-operating Brokerage of the debt represented by the unpaid commission provided for in TREB’s MLS® Listing Agreement.
If the Listing Brokerage fails to respond to the Notice within the Notice Period or if the Listing Brokerage elects to take steps to enable the Co-operating Brokerage to pursue a Claim but thereafter fails to take all steps reasonably necessary to facilitate the Claim,
the Listing Brokerage shall be deemed to have elected to pay the Co-operating Brokerage’s Commission to Co-operating Brokerage and shall forthwith make such payment.
If Co-operating Brokerage pursues a Claim,
it shall have sole carriage of the Claim, including, without limitation,
the right to select and instruct counsel,
to accept any settlement and compromise of the claim and
to discontinue the claim at any time.
All costs incurred by Co-operating Brokerage in connection with pursuing a Claim shall be solely for the account of the Co-operating Brokerage.
Any costs incurred by the Listing Brokerage in facilitating the Claim will be solely for the account of the Listing Brokerage.
All amounts actually received by the Co-operating Brokerage as result of pursuing a Claim
shall be applied to the extent available
first to the Co-operating Brokerage’s costs of pursuing the Claim,
second to the satisfaction of the Co-operating Brokerage’s Commission (including any HST thereon) with any amount remaining thereafter to be shared 50% to the Co-operating Brokerage as compensation for having carriage of the claim and 50% to the Listing Brokerage.
The Commission Recovery Lawsuit Arrangement
This Listing Brokerage lists the property for a 5% commission with 2.5% being payable to the Cooperating Brokerage acting for the Buyer. It’s a million dollar deal and the buyer’s portion of the commission is $25,000.00.
Let’s say the Listing Brokerage demands payment and when the Seller refuses or is short funds decides to sue. That’s their right, and the Buyer’s Brokerage will share 50% of the costs of pursuing the claim. Assuming the litigation cost $10,000.00, they would each divide the $40,000.00 equally.
If they refuse, then they must pay the Buyer’s Brokerage the $25,000.00 commission or they can let the Buyer’s Brokerage take over.
If that’s the case, the Buyer’s Brokerage sues the Owner (Seller) on the Listing Agent for the full $50,000.00.
Assuming that the case cost $10,000.00 in legal fees, then, they get this amount off the top. Then, they get their $25,000.00.
That leaves us with $15,000.00 which is then to be shared equally. This means that:
- the Cooperating Brokerage got $ 42,500.00
- the Listing Brokerage got $ 7,500.00
Caution
The trigger for payment was an Agreement, and not a successfully completed agreement.
The Listing Brokerage could avoid this, and protect their own client by having the Listing Agreement amended to provide that the “commission would be payable upon successful completion.
That would block the lawsuit!
Brian Madigan LL.B., Broker