Century 21 Leading Edge Realty Inc. v. Khanna2025 CanLII 150066 (ON SCSM),
A recent Ontario Small Claims Court decision provides important guidance for real estate professionals dealing with failed transactions, seller defaults, commission disputes, and mutual releases.
In Century 21 Leading Edge Realty Inc. v. Khanna, the Court considered whether a real estate brokerage was entitled to commission after the Sellers refused to complete a transaction following the acceptance of an Agreement of Purchase and Sale.
The Court found that the brokerage had earned its commission because it had produced a Buyer who was ready, willing, and able to complete the transaction.
However, the brokerage’s recovery was reduced because it breached its fiduciary obligations by improperly invoicing an amount greater than what it was entitled to claim.
The case provides valuable lessons for brokerages and REALTORS® about documentation, commission clauses, fiduciary duties, and the importance of clearly communicating with clients when a transaction is at risk.
The Listing Agreement and Accepted Offer
The dispute arose after Nidhi and Ajay Khanna listed their property for sale with Century 21 Leading Edge Realty Inc.
The listing agreement provided for a commission of 4.25% of the sale price and contained a common commission protection clause. The clause provided that commission remained payable even if the transaction did not close where the failure was caused by the Seller’s default or neglect.
Initially, the property was listed at $1.125 million. After receiving several offers below $1 million, the REALTORS® recommended reducing the asking price to $999,000 to generate additional interest.
The Sellers agreed.
The strategy worked. The property attracted multiple offers, and the Khannas accepted an Agreement of Purchase and Sale for $1.1 million, which was consistent with their stated goal of obtaining approximately $1.1 million for the property.
The transaction was scheduled to close on August 24, 2023.
The Failed Closing
Before closing, the purchasers requested changes to the closing date on two occasions. The Khannas agreed to both amendments.
Approximately nine days before closing, however, the Khannas requested a further extension from August 24 to August 31.
The purchasers did not agree.
The listing agent attempted to communicate with the purchasers’ representative but was unable to obtain the additional extension. The agent also advised the Khannas to explore alternative arrangements, including temporary accommodation or storage solutions, to avoid the consequences of a failed closing.
The Court found that the REALTORS® acted appropriately.
The Court rejected the argument that the agents were responsible for failing to obtain the extension, stating:
“The Agents have no special control or power over the Buyers.”
The Court found that the Khannas made a deliberate decision not to complete the transaction, despite being aware that the purchasers could potentially sue for damages or seek specific performance.
The Khannas continued to live in the property.
Was the Brokerage Still Entitled to Commission?
The central issue was whether the brokerage was entitled to commission even though the transaction never closed.
The Court answered yes.
The listing agreement clearly provided that commission was payable where the brokerage obtained a valid offer that was accepted by the Seller, even if the transaction later failed because of the seller’s actions.
The Court relied on the reasoning in T.L. Willaert Realty Ltd. v. Fody, 2013 ONSC 7533, confirming that a brokerage earns its commission when it produces a purchaser who is ready, willing, and able to complete the transaction.
The Court stated:
“The listing agreement entered into between the parties unequivocally binds the Khannas to pay a commission arising from any binding agreement of purchase and sale entered into during the term of the listing agreement, and that obligation cannot be avoided when the client aborts the sale on their own initiative.”
The fact that the sale did not close did not eliminate the sellers’ contractual obligation.
What Happened to the Deposit?
Following the failed closing, the purchasers reserved their rights to pursue claims against the Khannas, including damages and/or specific performance.
However, the purchasers wanted their deposit returned and agreed to resolve the immediate dispute by signing a mutual release.
The mutual release allowed the deposit to be returned to the purchasers and released the Buyer and Seller from claims arising from the failed Agreement of Purchase and Sale.
The Khannas later argued that the mutual release also released the brokerage from any claim for commission.
The Court rejected this argument.
The Court found that the mutual release dealt with two separate issues:
- The relationship between the Buyer and Seller, including the return of the deposit; and
- Whether the brokerages were releasing any claims they might have for commission or other remuneration.
Because Century 21 did not sign the mutual release, the brokerage had not agreed to waive its commission entitlement.
The Court explained:
“The only takeaway from the absence of the Brokerage’s signature on the Mutual Release is that they did not agree to release the Khannas from their commission obligation.”
The return of the deposit resolved the dispute between the Buyers and Sellers, but it did not eliminate the brokerage’s separate contractual rights.
This distinction is important. A mutual release following a failed transaction does not automatically release all parties involved unless they have agreed to be bound by it.
The Brokerage’s Fiduciary Duty
Although the Court found that the brokerage was entitled to commission, it also found that the brokerage breached its fiduciary duty in how it pursued payment.
After the failed closing, the brokerage issued an invoice demanding $52,827.50, representing the full 4.25% commission plus HST.
The problem was that the cooperating brokerage had released its entitlement to commission when it signed the mutual release.
The brokerage was therefore only entitled to its own portion of the commission.
The correct amount was $21,752.50.
The Court held that while a brokerage is entitled to enforce its contractual rights, it must do so fairly and honestly.
The Court stated:
“The Brokerage owed a duty of loyalty to their client not to bully them into paying 4.25%: an amount that the Brokerage was never entitled to receive.”
The Court found that the brokerage placed its own interests ahead of its client by pursuing payment of an amount it was not entitled to collect.
Punitive Reduction of the Commission
The Court could have simply reduced the commission to the proper amount.
Instead, it concluded that a stronger remedy was necessary to discourage similar conduct.
The Court awarded punitive damages of $10,000 against the brokerage.
The calculation was:
| Amount | Calculation |
| Correct commission owing | $21,752.50 |
| Less punitive damages | ($10,000.00) |
| Final judgment | $11,752.50 |
The Court explained:
“There needs to be a penalty, in my view, because compensatory damages alone are not sufficient to achieve the goals of deterrence and denunciation.”
The Importance of Written Communication
One of the strongest lessons from this case is the importance of documentation.
The Court accepted the agent’s testimony that she verbally advised the Khannas that the brokerage intended to pursue its commission claim.
However, the Court criticized the lack of written confirmation.
The Court noted:
“A timely one sentence email, text, or letter making it clear that the Brokerage was holding the Khannas to their commission obligation would have likely avoided this entire lawsuit.”
This is a significant practice point.
When a transaction is at risk of failing, REALTORS® should clearly document:
- that a binding Agreement of Purchase and Sale exists;
- that the Seller has obligations under the agreement;
- that failing to close may result in legal consequences;
- that commission obligations continue under the listing agreement;
- that any mutual release does not waive brokerage rights unless expressly agreed.
Lessons for REALTORS®
1. A Seller Cannot Simply Walk Away From an Accepted Deal
Once an Agreement of Purchase and Sale has been accepted, sellers cannot assume they can abandon the transaction without consequences.
A failed closing may expose sellers to:
- purchaser damages;
- claims for specific performance;
- commission obligations.
2. Commission Clauses Provide Important Protection
A properly drafted listing agreement can protect a brokerage where the seller causes the transaction to fail.
This case confirms the importance of clear commission provisions dealing with situations where:
- a Buyer has been found;
- an offer has been accepted; and
- the Seller prevents completion.
3. Mutual Releases Must Be Carefully Reviewed
A mutual release may resolve issues between buyers and sellers, including the return of deposits.
However, brokerages should ensure that their own rights are expressly addressed.
If a brokerage intends to release commission rights, it should clearly state that intention.
If it does not intend to release those rights, that should also be communicated clearly.
4. Fiduciary Duties Continue Even During Commission Disputes
A REALTOR® remains a fiduciary even when enforcing contractual rights.
The right to collect commission does not permit:
- inaccurate invoices;
- overbilling;
- misleading communications.
Brokerages must always act honestly, fairly, and transparently.
Conclusion
Century 21 Leading Edge Realty Inc. v. Khanna confirms that Ontario courts will enforce commission agreements where a brokerage has fulfilled its obligations and the seller causes a transaction to fail.
However, the decision also demonstrates that entitlement to commission is not the end of the analysis. Brokerages must carefully manage how they enforce their rights.
The brokerage succeeded because it had a valid contractual claim. It lost a significant portion of that claim because it failed to properly document the commission obligation and sought payment of an amount it was not entitled to receive.
For REALTORS®, the message is clear: document everything, communicate clearly, and remember that fiduciary duties continue even when protecting your own contractual interests.
Brian Madigan LL.B., Broker
www.OntarioRealEstateSource.com