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Can Real Estate Commission be Payable Without a Completed Sale?

It is common knowledge that under a standard listing agreement with a real estate brokerage, a seller is obliged to pay commission once there is a sale of the listed property either during the specified term, or during the stipulated holdover period. But in a recent case heard by the Supreme Court of Canada, the issue was whether on proper interpretation of a listing agreement, any commission was payable even though there was no sale of the property at all.

The case involved the intended sale of commercial property in Quebec. At the time, the standard form listing agreement put out by the province’s real estate organization obliged the seller to pay its chosen brokerage firm its commission where an “agreement to sell an immovable” was concluded during the contract’s term, or if “the seller voluntarily prevents the free performance of the [brokerage] contract”.

The seller received an offer to purchase from a potential buyer, which offer was duly submitted through the brokerage firm in keeping with the brokerage contract requirements. The offer was conditional on the buyer being completely satisfied with the property after performing due diligence.

As it turned out, the buyer’s inspection revealed the possibility of contaminated soil, so the buyer withdrew the first offer and submitted a second one; this time the offer was conditional upon the seller eliminating the contamination at its own expense. The seller refused to do so, and the deal collapsed.

Nonetheless, the brokerage firm claimed its commission from the seller, pointing to the wording of the standard brokerage contract (which was a separate document from the agreement of purchase and sale).

At trial, the Quebec Superior Court dismissed the brokerage firm’s commission claim, but the Court of Appeal reversed, finding that the firm was indeed entitled to commission even though no actual “sale” had ultimately been concluded. The matter went to the Supreme Court of Canada for resolution.

That Court was asked to determine whether, despite the aborted underlying deal, there was either an “agreement to sell the immovable” within the particular wording of the brokerage contract, or whether the seller had voluntarily prevented the free performance of the brokerage contract, so as to trigger the commission payment obligation nonetheless.

The Supreme Court concluded that the intended buyer’s promise to purchase had not been unconditionally binding on it, to the point where it could be said that an “agreement to sell the immovable” had actually been reached. The legal test was whether, when all was said and done, either the buyer or the seller had the right to bring an action to compel transfer of title.

Under this particular failed agreement of purchase and sale, neither of them did: the buyer’s second offer, in which it requested the seller to remediate the soil contamination at its own expense, was a repudiation of the first offer, which the seller had never accepted. Moreover the second offer was conditional upon the contaminated soil being remediated and was never accepted. Further, the Court found that the seller did not have an obligation to decontaminate the soil and its failute to agree to do so did not prevent the free performance of the contact.

Accoridngly, the Supreme Court of Canada found that under the wording of the brokerage contract, no commission was payable. Conceivably however, a differently-worded contract may have resulted in an outcome calling for commission payment, even absent a completed underlying sale. See Societe en commandite Place Mullins v. Services immobiliers Diane Bisson Inc., 2015 (SCC)