February 7th - 2012

Holdover clause is an ounce of prevention

Although many OREA standard clauses are designed to protect your clients, the holdover clause in a listing agreement was specifically created to protect REALTORS® by ensuring that you receive the commission you’ve earned if a house sells.

Although many OREA standard clauses are designed to protect your clients, the holdover clause in a listing agreement was specifically created to protect REALTORS® by ensuring that you receive the commission you’ve earned if a house sells.

“The holdover clause is like an ounce of prevention, giving us some recourse against sellers who may not be playing fair,” says Ron Abraham, a King City broker, OREA instructor and president-elect. “If I show someone a property I’ve listed -- or even if another salesperson introduces a buyer -- this clause gives me some protection if the buyer and seller hook up in a private deal after my listing expires. It recognizes that I’ve put time and effort into finding that buyer.” 

If agreed to by the seller, a holdover clause may be included in the listing agreement between seller and brokerage. If a buyer who was shown or introduced to a property when it was originally listed later approaches the seller directly once a listing expires and purchases it during the holdover period, the listing brokerage may make a claim for commission.

As well, if a seller re-lists a property with a different brokerage and sells it to someone  shown or introduced to the property during the original listing period, the first brokerage may make a claim for commission -- but only if the commission on the new listing is less than it was in the previous listing. Most often, the claim would be limited to the difference between the two amounts.

If the eventual buyer was not shown or introduced to the property during the original listing’s term, no claim for commission can be made. Moreover, if negotiations begin between a buyer and seller during the listing’s term but conclude after the holdover period’s expiry, it is more likely that a court would find that the contract was outside the holdover period, and a claim for commission would be less likely to succeed in those circumstances. The listing brokerage may wish to have its lawyers review section 23 of the Ontario Regulation 567/05 – General to see whether a claim for commission would have more success under that section.

All commission terms are negotiable. The exact wording and time limit of the holdover period in a listing agreement can vary so the time period is left blank until the broker or salesperson discusses it with the client. No maximum limit exists for the holdover period -- it can last any duration, as long as the client consents after being fully informed. (References to the holdover clause can be found in clauses 2 and 5 of the listing agreement.) Some brokerages develop specific policies to address the holdover period.

Abraham notes that problems with the holdover clause are uncommon, but the clause should be explained to clients when the listing agreement is discussed.

“Most people realize the amount of time and effort you put into selling their home and that you deserve to be paid,” says Abraham. “The holdover clause is there not only to protect your commission but also that of the cooperating brokerage.”

Explaining the holdover clause thoroughly will ensure that your clients understand its purpose and help to prevent future problems, says Abraham. “Issues about the holdover clause usually don’t arise if a salesperson discloses and explains all of the documents thoroughly in a transaction.”

Similar holdover provisions may also be included in a Buyer Representation Agreement (BRA) and in seller customer service agreements if the buyer or seller agrees.

Summaries of relevant court cases can be found in OREApedia under Holdover Clause/Holdover Period. Cases such as Culligan Real Estate v 1336459 Ontario Ltd. can be viewed there and in EDGE newsletter’s January 2007 issue. See also the case of Homelife/Vision Realty v Clubine, noted in EDGE newsletter’s June 2010 issue.

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Ontario Real Estate Association

Jean-Adrien Delicano

Manager, Media Relations

JeanAdrienD@orea.com

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