Held up by the Holdover: Buyer Representation and Listing Agreements in Real Estate Transactions

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For a buyer, the search for real estate can be daunting.  How do you really know what you are getting?  How do you negotiate and put in an offer while ensuring your interests are protected?  For these and many other reasons, buyers often engage the services of a licensed real estate agent.  

A common feature of a buyer-agent relationship is a Buyer Representation Agreement.  Because they typically work on commission, real estate agents want some assurance that they will get paid for their work, and a typical Buyer Representation Agreement will state that the buyer must use their agent’s services to purchase any property of the general description set out in the Agreement that comes to their attention while the Agreement is in force.  A typical Buyer Representation Agreement also contains a “holdover” clause, which provides that, for a period of time after the Agreement terminates (90 days is common), if a buyer purchases a property that came to their attention during the period of the Agreement, the buyer must go through their agent to make the purchase (and more importantly, pay the agent’s commission).

On the other side of the transaction, real estate agents representing a seller will often require that seller to sign a Listing Agreement (which may or may not be exclusive).  Similar to the Buyer Representation Agreement, an exclusive Listing Agreement will usually require that the seller refer all prospective buyers who are introduced to the property, regardless of where they are introduced from, to go through the seller’s agent.  These Listing Agreements usually contain similar holdover clauses.

While these agreements sound simple enough, there can be some confusion regarding whether or not they apply to certain transactions.  One such example was in the recent case of Sutton Group All Pro Realty v. Reil [2013] O.J. No. 1603 (“Sutton Group”).  In this case, the seller signed a Listing Agreement with one of the plaintiff’s agents; the listing period lasted until the end of August.  The agent tried to show Ms. Galley, a prospective buyer, a converted cottage property.  Based on the agent’s description, Ms. Galley was not interested and did not visit the property.  In September, after the Listing Agreement expired (but during the holdover period), Ms. Galley was shopping for a house with her boyfriend, who fell in love with the same property.  Despite her opinion of it, her boyfriend convinced her that they should purchase the property.  Because the Listing Agreement had expired, the seller sold the property to the couple privately.  The agent later sued for their commission.  The Court found that Ms. Galley had not been “introduced” to the property during the listing period because she never actually saw it.  Her boyfriend was only introduced to the property in September (after the listing period expired), and it was he who actually caused the transaction to go forward.  Because the agent had failed to entice Ms. Galley to be introduced to the property, he was not entitled to the commission on its sale.  

Buyer Representation and Listing Agreements are purposely broad to help ensure that agents get paid for the services they provide.  The Sutton Group case had a unique set of circumstances, and turned almost entirely on the interpretation of the word “introduced”.  

A different sort of confusion was found in Daciuk v. Gibson [2012] O.J. No. 2446 (“Gibson”).  In this case the defendant, Mr. Gibson, signed a Buyer Representation Agreement with a real estate agent.  Mr. Gibson’s girlfriend, Ms. Simpson, was involved in the search as well.  Shortly after the Buyer Representation Agreement came into effect, Mr. Gibson’s agent went on vacation and another agent from the same brokerage took over.  Mr. Gibson instructed this new agent to submit an offer for a property which was promptly rejected.  There was conflicting testimony on what happened after that:  Mr. Gibson testified that this new agent refused to submit a counter offer for the property, and that the new agent refused to show him any more properties; the new agent testified that he did not submit the counter offer because he was told by the seller’s agent that it would not be accepted.  

Mr. Gibson then went on to find a new property, which he purchased without his agent while his Buyer Representation Agreement was still in force.  Ms. Simpson testified that she exchanged text messages with Mr. Gibson’s original real estate agent, advising that Mr. Gibson found a new property, and that original agent told her “not to worry about it”.  This led Ms. Simpson to conclude that Mr. Gibson was free to purchase the property and that his agent would not enforce the Buyer Representation Agreement; Mr. Gibson proceeded based on this information he received from Ms. Simpson.  The agent/her brokerage sued Mr. Gibson for the commission.  

The Court found that there was no evidence that the agent waived her rights under the Buyer Representation Agreement, and found that Mr. Gibson was liable to pay the commission of 2.5% for the property he purchased.

The Gibson case illustrates the importance of clear and direct communication between parties to a contract.  It also illustrates a very important point: anyone wishing to have a written agreement amended or waived would be wise to get the amendment or waiver in writing.  In the Gibson case a written waiver would have provided much-needed evidence to refute the agent’s claim for her commission.  

Aside from the obvious benefit of documentary evidence, reducing amendments or waivers to writing gives both parties an opportunity to see and clearly understand the changes in their relationship, and the opportunity to agree or disagree to those changes.  Many disputes, and certainly those in Gibson and Sutton Group, arise out of unsatisfied expectations.  In Gibson, getting, or attempting to get the waiver in writing would have clarified each party’s position; the commission would have been paid or waived, depending on what the parties agreed to.  In Sutton Group, the parties could have taken the time to clarify their positions on whether commission was payable at the time the sale took place, which would have probably avoided the costs of litigation.

When you enter into an agreement (of any kind, not just Buyer Representation or Listing Agreements), it is important to clearly understand both parties’ rights and obligations.  If one or both parties want to make changes to the agreement, get those changes in writing.  The best way to understand the rights and obligations under an agreement is to contact your lawyer.  Your lawyer can help you set out your relationship with the other party in writing in a way that protects your interests and expectations and, hopefully, avoids misunderstandings and disputes down the road.

David Reid is an Associate with the law firm of BrazeauSeller.LLP.  He practices in the areas of corporate & commercial law and real estate.  David can be reached at 613-237-4000 ext. 252 or dreid@brazeauseller.com.  For more information about David, please visit www.brazeauseller.com.

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