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Lack of Written Notice Costs Real Estate Brokerage $120,000 in Commission

In what is perhaps a surprising recent decision from the Ontario Court of Appeal, the simple lack of the required written notice under a listing agreement cost a brokerage a hefty commission on a commercial transaction. The case is a good illustration of the court’s willingness to strictly enforce contract terms as a means of affirming commercial certainty.

Ariston Realty Corp. (“Ariston”) was the real estate brokerage; Elcarim E Legna Inc. (“Elcarim”) owned property it wanted to sell. Under the holdover clause in their listing agreement, they agreed that Elcarim would pay Ariston 5% of the purchase price on completion of any sale effected within 6-months after the agreement’s expiry. This would be triggered if the buyer was “introduced” to the property by Ariston within that period; however – and this is an important point – the agreement required Ariston to give Elcarim notice of that introduction in writing.

Ariston did introduce the eventual buyer, Context Development (“Context”), to the property within the initial 6-month term; however, Ariston never provided written notice to Elcarim as required under that contract. When Elcarim refused to pay Ariston its claimed commission – totalling more than $120,000 – Ariston sued.

Ariston succeeded at trial, but the ruling was later appealed. The main legal questions were: 1) whether the lack of written notice disentitled Ariston to its commission; and 2) whether Ariston was nonetheless entitled to be paid for its services based on the equitable principle of “unjust enrichment.”

In allowing the appeal and overturning the award for commission in Ariston’s favour, the Court of Appeal started by confirming basic contract law principles: that the standard form agreement “means what it says”; that the parties expect it to be honoured by a court; and that it was to be interpreted in keeping with the parties’ intentions. That last element involved looking at the particular wording of the contract in light of its underlying context.

In this case, the holdover clause reversed what was standard in most other listing agreements, which was that the expiry terminates the listing contract entirely. Instead, it imposed a written notice requirement that was more than a mere formality. Rather, it required notice in writing by Ariston that it had introduced Context to the property and Ariston’s entitlement to commission was contingent upon this being strictly complied with. If there was no notice given, then there was simply no commission earned within the clear meaning of the listing agreement’s wording.

With that said, the Court of Appeal did partially accept Ariston’s alternative argument: that it was entitled to be compensated based on the fairness principle of “quantum meruit” (which loosely translates to pay-for-work-performed). Although the Court could not innovate an implied contract to replace the one that governed the initial 6-month term, it could acknowledge the value of the services rendered by Ariston after the listing agreement expired, which included having its broker meet with Elcarim on several occasions, and offering other assistance which Elcarim freely accepted. This gave rise to an implicit contractual understanding that Ariston would be fairly paid for these services; otherwise, Elcarim would be unjustly enriched at Ariston’s expense. In the circumstances, Ariston was awarded $20,000 in compensation. See Ariston Realty Corp. v. Elcarim Inc., 2014 (ONCA).