The Missing Indemnity Clause

This is the case of the “missing” indemnity clause. You might think that there is an indemnity clause because the paragraph starts out with the word “indemnification”. But, naturally, that’s not the whole story.

There is a standard form agreement known as a Buyer Representation Agreement (BRA for short). It was drafted by the Ontario Real Estate Association (OREA) to bind buyers to realtors. The purpose of the agreement was to make sure that the buyer didn’t jump ship, and move to another realtor, while the first agent had shown him a number of properties. Generally, there was to be a commitment for a specified time period.

So, here’s the clause in the BRA:

“5. INDEMNIFICATION: The Brokerage and representatives of the Brokerage are trained in dealing in real estate but are not qualified in determining the physical condition of the land or any improvements thereon. The Buyer agrees that the Brokerage will not be liable for any defects, whether latent or patent, to the land or improvements thereon. All information supplied by the seller or landlord or the listing brokerage may not have been verified and is not warranted by the Brokerage as being accurate and will be relied on by the Buyer at the Buyer’s own risk. The Buyer acknowledges having been advised to make their own enquiries to confirm the condition of the property.”

This paragraph seems simple enough, but, just one thing: where’s the indemnity? You know what I mean, the actual agreement for indemnification!

This is a clause that might provide something as follows:

“The Buyer agrees to indemnify and save harmless the Brokerage and the representatives of the Brokerage from any and all claims, lawsuits, damages, judgments, orders (etc.), in any way arising out of …….”

However, this document doesn’t say that, or anything close to that. So, let’s have a closer look at the clause line by line:

· 5. INDEMNIFICATION: (so far, so good)

· The Brokerage and representatives of the Brokerage are trained in dealing in real estate (OK, we can accept that)

· but are not qualified in determining the physical condition of the land or any improvements thereon. (that’s fine)

· The Buyer agrees that the Brokerage will not be liable for any defects, whether latent or patent, to the land or improvements thereon. (this is true, however the phrase is more of a disclaimer)

· All information supplied by the seller or landlord or the listing brokerage may not have been verified and is not warranted by the Brokerage as being accurate and will be relied on by the Buyer at the Buyer’s own risk. (perhaps, it should be verified, at least to some extent)

· The Buyer acknowledges having been advised to make their own enquiries to confirm the condition of the property. (all buyers should have home inspectors, what else is new)

Actually, the way this works is rather simple. There was no indemnification clause. It doesn’t matter what you call it. The operative words were absent.

To some extent, it was a disclaimer. To some extent it was a limitation of liability, but, under no circumstances did it amount to an indemnification; that is, an obligation on the part of the buyer to save the brokerage from some risk, or to reimburse them should they be sued. There was nothing like that here.

The term “Indemnification” alone is simply a “misnomer” and has no meaning.

Isn’t that a great way to start a new relationship? Why not get the agent to explain the missing indemnification clause “just for fun”?

Their answer could be interesting, because they will expect the standard form to be correct, when it’s not.

And, if you’re a realtor simply say that the word “disclaimer” will probably replace the word “indemnification” when the documents are updated. What more can you say?

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com