For Commission
This is an interesting question, and it all depends upon the holdover clause.
When REBBA was in effect, there was an obligation to canvass this matter with a prospective Buyer in order to secure their “informed consent”. However, this was often a matter which was simply overlooked and then afterwards:
- The agent would say they did, and
- The client would say they didn’t
So, fast forward to TRESA as of 1 December 2023. Now, the RECO Information Guide needs to be shared and it specifically draws the Buyer’s attention to the holdover clause.
Let’s assume we have a commercial Buyer Representation Agreement (BRA) from last year:
- Starts: 1 August 2023
- Runs: to 30 August 2024
- Holdover: 365 days, or 30 August 2025
- Commission: 3%
If the length of the initial contract was for 6 months or more, the Buyer’s initials were required.
If the Buyer struck any sort of a deal, between 1 August 2023 and 30 August 2024, the 3% commission would have to be paid.
Let’s look at the exact wording in the holdover clause:
“The Buyer agrees to pay the Brokerage such commission if the Buyer enters into an agreement within ………………………….. days after the expiration of this Agreement (Holdover Period) to purchase or lease any real property shown or introduced to the Buyer from any source whatsoever during the term of this Agreement, provided, however, that if the Buyer enters into a new buyer representation agreement with another registered real estate brokerage after the expiration of this Agreement, the Buyer’s liability to pay commission to the Brokerage shall be reduced by the amount paid to the other brokerage under the new agreement.”
Review: Holdover Clause
“The Buyer agrees to pay the Brokerage such commission if the Buyer enters into an agreement
within ………………………….. days after the expiration of this Agreement (Holdover Period)
to purchase or lease any real property shown or introduced to the Buyer from any source whatsoever
during the term of this Agreement,
provided, however, that
if the Buyer enters into a new buyer representation agreement
with another registered real estate brokerage
after the expiration of this Agreement,
the Buyer’s liability to pay commission to the Brokerage
shall be reduced by the amount paid to the other brokerage under the new agreement.”
Comment
Effectively, this means that you have a contract which runs to 30 August 2025, with:
- a Listing Period and
- a Holdover Period.
During, the Listing Period you pay 3% to Brokerage #1.
During the Holdover Period you pay3% to Brokerage #1, unless you have in fact entered into a new BRA with Brokerage #2.
If you are paying, Brokerage #2, a commission of 1.0%, then you will pay 2.0% to Brokerage #1.
If you are paying, Brokerage #2, a commission of 2.0%, then you will pay 1.0% to Brokerage #1.
If you are paying, Brokerage #2, a commission of 3.0%, then you will pay 0% to Brokerage #1.
If you are paying, Brokerage #2, a commission of 4.0%, then you will pay 0% to Brokerage #1.
That’s how the holdover provision works.
You must engage another Brokerage. You can’t act for yourself.
And, you MUST pay Brokerage #2 a commission which is equal to, or higher than the initial commission in order to eliminate any commission obligation to the first Brokerage. So, that also means “no friends and no relatives” at a discount.
Brian Madigan LL.B., Broker