COMMERCIAL REAL ESTATE BROKERS AND COMMISSIONS

THE COMMISSION OF A REAL ESTATE BROKER

  1. INTRODUCTION

Maybe you would like to purchase or rent a commercial or industrial immovable; or maybe you’re only looking for a residence? One day or the other, we all end up buying or renting a property. Even though it is common measure to require the service of a real estate broker with a valid license, certain legal aspects regarding the retribution paid to the broker for his services, referred to as real estate commissions, are unknown to the typical buyer or seller.

If you have agreed on the main elements of the contract in writing, such as the broker’s commission, the contract term or the exclusivity of its services, chances of a dispute between the different parties are minimal.

However, what happens when the contract is verbal? Or when the broker’s services were not expressly accepted in writing and he requests a commission subsequently to the transaction? What about when the brokerage’s contract is expires and a transaction is subsequently consummated? Can the broker still claim his commission? The answers differ depending whether the brokerage contract was concluded in a residential or commercial context.

Whether you are a commercial or residential real estate broker, or that you have already dealt with one, this article will help you understand the predominant legal obligations related to a broker’s real estate commission.

  1. IS A WRITTEN BROKERAGE CONTRACT MANDATORY?

Residential field:

You request the services of a real estate broker to buy sell or rent a house, apartment or condominium and you wonder if the real estate brokerage contract can be verbal. In most cases, the answer is simple: the brokerage contract must be written.

Both the Civil Code of Quebec and the Real Estate Brokerage Act[1] (hereinafter referred to as the “Act”) and more specifically, section 13 and 17 of the Regulation respecting contracts and forms[2] (hereinafter referred to as the “Regulation”) in force since July 1st 2012 require that the mandate be in the written form.

This application applies to brokerage contracts for a residential property with less than five tenants, as well as a residential co-ownership. The brokerage contract must be signed for the mandate to serve its effect, failing which it can be construed as infringing on the validity of the Act and Regulation.

Commercial Real Estate:

In regards to a real estate brokerage contract subject to a commercial property or a residential property that has more than 5 tenants, the situation is a little more delicate.

It is nowadays very hard not to conclude a written mandate without the signature of the parties as it should be in the written form similar to the residential real estate contracts.

With this being said, the commercial real estate brokers habits and customs are hard to break as it often occurs where the real estate mandate or contract is unsigned or is implicit in nature.

In a 2015 publication from the Organisme d’autoréglementatioen du courtage immobilier du Québec(OACIQ), the OACIQ found that it was customary in the commercial brokerage field to see the absence of a written brokerage contract[3]. In other words, many brokers and their clients continue to deny what now seems to be a legal obligation.

Such costums and habits may be a fertile field for contentious situations concerning the broker’s rights to a commission.

This is why we promote a preventative approach that emphasizes on written contracts for every commercial real estate brokerage contract.

  1. THE COMMISSION AND THE “EFFICIENT CAUSE”

In 1910, the Privy Council, in the Burchell[4] case, initiated the actual position of the Supreme Court of Canada appreciating the broker’s right for a commission:

It would be unfair to refuse the real estate broker his commission if he is the “efficient cause” of the transaction, even if it was concluded after the expiration of the brokerage contract as it was due to his efforts to reunite the seller/landlord and the buyer/tenant.

In other words, section 27 of the Act, gives right to a broker the right to receive his commission during the “additional period” of 180 days after the expiration of his contract.

If, during this time, a transaction takes place between the person that was bound by a brokerage contract (ie the broker and the seller) and another person interested to the property by the agent(ie the buyer), there should be a remuneration paid to the broker.

It is important to mention that in case of a dispute, the burden of proof lies on the broker to prove that he is the efficient cause of the transaction in accordance with section 2803 of the Civil Code of Quebec.

In the light of the foregoing, the legislature is therefore looking to prevent situations where a client attempts to avoid paying his broker by waiting for the expiration of the mandate to conclude a transaction.

Example :

Legend :

A = the residential real estate broker

B = the seller

C = the buyer

Situation:January 1st 2016, and sign a brokerage contract through which A commits himself to help B sell his house. It is intended that the contract will expire the January 1st 2017. January 2nd 2016, namely immediately after the beginning of the contract, A invites C visits the property during the mandate but does not make an offer.

C shows interests and visits the house during the term of the contract but does not make an offer. Other potential clients show interest in the house but nevertheless, no sale is concluded.

January 2nd 2017, immediately after the contract’s termination date, C calls B and finally decides to make an offer and buy the property.

Is A entitled to a real estate commission?

Conclusion: YES. Even if A’s contract expired, A brought to the property during the visit and A is entitled to a real estate commission during the period of 180 days after the expiration of the mandate.

  1. CASE LAW: 

a) Cases where the commission was granted to the broker : 

  • When the seller knows perfectly well that the broker was the one putting him/her in contact with the buyer[5];
  • When the broker’s efforts led to a promise to purchase and the sale is postponed due to the discovery of latent defects[6] or the mutual agreement to extend the delays[7];
  • When the broker does not participate in every single step of the negotiations leading to the purchase of the property[8];
  • When it is successfully proved that parties to the sale deliberately waited until the end of the broker’s mandate to enter into an agreement in order to avoid paying the commission[9].

b) Cases where the real estate broker commission was refused:

  • When the broker voluntarily yields its place to another broker before the sale of the property[10];
  • When negotiations surrounding the sale fail and another broker takes over/ picks up the mandate[11];
  • When the broker verbally agrees to act as an middleman without any express agreement concerning the commission[12];
  • When a broker’s efforts are limited to visiting the property on his own and receiving informative documents concerning the property[13];
  • When a sale agreement intervenes during the additional 180 days period without the broker being the source of the interest of the buyer regarding the property[14];
  • When the broker, despite his efforts to publicize the property, did not successfully create a “certain interest” during the mandate period[15];
  • When a buyer knew, during the broker’s mandate, that the property was on the market but that no one was not interested by it[16]; 
  1. CONCLUSION

The Act and its new Regulation both closely frame all brokering activities and operations in order to guard brokers and their clients against injustices. As mentioned hereinabove, it has become evident that all types of brokerage contract require a written form.

Furthermore, one must not forget the additional period subsequent to the ending of the mandate that extends the possibility for a broker to claim a commission.

[1] RLRQ c. C-73.2

[2] RLRQ c. C-73.2, r. 2.1

[3] OACIQ, « Pratiques particulières en immobilier commercial », publié le 20 juillet 2015, numéro d’article 124743.

[4] Burchell c. Gowrie, [1910] A.C. 614.

[5] Paquette c. St-Jean, [1954] C.S. 212

[6] Société Immobilière Devencore Ltee c. Robert, [1993] R.D.I. 403 (C.S.)

[7] Immeubles Action ltée c. Perron, J.E. 95-344 (C.S.)

[8] Royal Lepage Commercial inc . c. 3877132 Canada Inc., 2007 QCCS 2648

[9] Re/Max inc c. Dussault, 2010 QCCQ 8500

[10] Groupe Jacques Besner c. Briand, J.E. 200-813 (C.S.)

[11] Royal Lepage Commercial inc. c. Bohbot, B.E. 2004BE-538 (C.S.)

[12] Bélanger c. Versants Mont-Tremblant, 2015 QCCA 12450

[13] Morgan Trust Company c Immeubles Delrano Inc, 1986 CanLII 3756 (QC CA)

[14]Groupe Sutton actif inc. c. St-Amand, 2005 CanLII 45638 (QC CQ)

[15] Capitale Estrie Coop c. Tremblay, 2010 QCCQ 9907

[16] Re/Max de la Pointe c. Leclerc, 2007 QCCQ 13827

If you are looking for a law firm with reasonable rates, quick and efficient turnaround time for your files and who provides personalized and effective follow-ups, call Schneider Attorneys at (514) 439-1322 ext. 112 or email us at info@schneideravocat.com

The above noted text should not be construed as providing legal advice or a statement of your claim. The process highlighted above are merely parameters and barometers and do not constitute any warranties and guaranties with regards to your file at hand. We strongly recommend that you seek legal advice with a licensed attorney from the Barreau du Quebec or a notary at the Chambre des Notaires. Each case must be seen and analysed on its merits as the legal process may be complex and cumbersome.