Alberta Court Case: Written Service Agreements

A recent court case has effectively demonstrated how a Court may use a written service agreement to sort out a fee dispute between a brokerage and a buyer client.

The case is about the interpretation of a written buyer brokerage agreement and whether a buyer brokerage fee (commission) was owed. Since the buyers’ liability for the fee turned on the precise wording of the written buyer brokerage agreement, the case supports the use of such agreements. The written agreement demonstrated the brokerage’s willingness to assist the buyers in their efforts to purchase a property and reduced possible confusion as to whether the “effective cause” notion applied in the circumstances of the case. The written agreement was pivotal in the Court’s decision that commissions were owed to a buyer brokerage because the contracted circumstances were in play. The case may also stand to remind buyers that they should be particularly aware of the content of any agreements they sign. Even when individuals choose not to use contracted services, fees may be owing.

In this case, buyers entered into an exclusive buyer brokerage agreement with a brokerage. During the currency of the agreement, the buyers attempted to purchase a property with the assistance of the brokerage’s industry member but were unable to complete the transaction because of their difficulty obtaining a mortgage. Subsequently, the buyers chose to proceed without using the services of the contracted brokerage. They directly contacted the seller and a sale completed. The buyer’s brokerage requested payment of commission from the buyers and the buyers declined to pay. A Court action ensued and the plaintiff brokerage was entitled to judgment against the buyers pursuant to the Buyer Brokerage Contract.

The buyer brokerage contract provided:

6.4 The Brokerage will be entitled to receive the Fee and the Buyer will be obligated to pay it, if:

a)
(i) during the term of this Contract, the Buyer enters into a contract for the Purchase of any specific property;
(ii) the obligations of the parties are (have become) unconditional; and
(iii) at the closing date the seller is willing and able to complete the transaction; or

b) within 90 days after this Contract has ended, the Buyer enters into a contract for the purchase of any specific property and during the term of this contract the specific property was introduced to the Buyer by the Brokerage or through the efforts of the Brokerage.

The Court took the view that under the agreement, there was no requirement that the real estate brokerage had to provide services during an ultimately successful transaction to be entitled to receive a commission. The agreement was an exclusive agreement in which the buyers agreed to pay a commission in respect of any real estate purchased by the buyer during the term of the contract. If the buyers chose to proceed without the services of the brokerage, as they in fact did, this did not mean the brokerage was not entitled to a commission. The parties agreed the brokerage would be entitled to a fee if, during the term of the agreement, the buyer completed a transaction.

The Court stated at paragraph 12 of the decision: “…The wording of clause 6.4, which triggers the obligation to pay a commission, supports the interpretation that if any property is purchased during the terms of the contract, the Buyer will be liable to pay commission whether or not the Brokerage was the “effective cause” of the sale. Clause 6.4 (b) states that if the Buyer purchases a property within 90 days of the contract ending, the Buyer will be liable for commission “only if during the term this specific property was introduced to the Buyer by the Brokerage or through the efforts of the Brokerage”. This suggests that clause 6.4 (a), which simply refers to the purchase of any specific property, would include properties which were not introduced to the purchaser by the Brokerage or which did not result through the efforts of the Brokerage.”

To read the Court’s decision in full, click here.

Do you agree with the Court’s decision?