Recovery of Commissions
| January 26, 2016
In a recent court case, an Alberta judge awarded a real estate brokerage partial commissions after the brokerage sued to recover commissions from a commercial property buyer. The brokerage did not have a written service agreement with the buyer, and there was no agreed upon remuneration in writing.
Facts of the Case:
- this was a commercial deal in 2012, so written service agreements were not – and still are not – mandatory
- the buyer:
- was a non-profit organization with a board of directors and administration
- paid no remuneration to the brokerage citing the fact they had no formal relationship
- the brokerage:
- was not the listing brokerage
- had no previous relationship with the buyer
- contacted the buyer, notifying them of a property they may be interested in
- compiled information on the property for the buyer
- set up two tours of the property for the buyer
- claims the director of finance and administration for the buyer agreed verbally to a commission of 2%
- the buyer’s eventual offer on the property and final purchase details were handled by the buyer’s lawyers
- the brokerage and the buyer never entered into a written service agreement, though the brokerage provided one on multiple occasions to the buyer for signature
Section 22 of the Real Estate Act deals with recovery of commissions by stating licensed real estate professionals may not sue a person for commissions in connection with a transaction unless:
- there is a written service agreement signed by the parties
- the buyer or seller, as the case may be, has effected a sale or lease of land or an interest in it as a result of the services of a real estate broker they employ
In this case, there was no written service agreement outlining remuneration or even confirming the brokerage was working on behalf of the buyer. However, the judge found the brokerage did perform services for the buyer that are expected of a licensed real estate professional working with a client. Also, the buyer and the brokerage agreed during the case that they had discussed, verbally, a 2% commission rate. They differ on whether or not that discussion was an actual agreement. Under section 22 of the Act, the brokerage claims it was employed by the buyer.
In the end, the judge cited quantum meriut, or “what one has earned” as the reason for his decision. He ruled the buyer benefited from the services provided by the brokerage, and the brokerage was, for a time, employed by the buyer to facilitate a trade in real estate. Therefore, the brokerage was entitled to some remuneration.
The brokerage could have avoided this multi-year court process, and all of its related costs, by entering into a written service agreement with the buyer. This was a commercial trade in real estate in 2012, so while a written service agreement was not mandatory, such agreements are still a best practice for commercial real estate professionals.
Written service agreements protect everyone involved in a trade in real estate from misunderstandings, particularly when it comes to remuneration. When in doubt, write it out.