Mutual Releases and Getting Paid on the Second Deal

Question:

If I write a mutual release for a conditional sale, is there a mechanism to prevent the buyer and seller doing a deal together in a few more weeks without paying the brokerage?

Answer:

There is a substantial difference between a conditional sale and an unconditional sale.

The answer is 1) no for the Conditional sale, and 2) yes, for the Unconditional sale.

Conditional sale

The Buyer gets his deposit back. Releases are not of much consequence. All that is needed is the Direction to be signed, no need for the release.

Unconditional sale

The deposit has now been locked into the deal with the obligation to pay the commission. The Brokerage has some leverage here. Charge the full commission and let the parties decide who get the rest of the deposit. Further, obligations for payment will arise on the second deal depending upon the Listing Agreement and the Buyer Representation Agreement.

If the Brokerage has some concerns about the “second deal” potential, then add some time to the holdover provision. It’s a valid contract since the Brokerages are giving up the deposit in exchange for “additional days”.

Similarly, this would not apply if the deal is Conditional, unless there is an element of “bad faith”. Any “negotiated” additional days would not apply due to the lack of consideration.

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com

Leave a Reply

Your email address will not be published.