January 7th - 2012

Legal Beat: Use appropriate forms to avoid litigation

This case raises the issue of whether a real estate brokerage is entitled to a portion of the commission from the listing brokerage after a commercial sale when a Confirmation of Co-operation and Representation (OREA Form 320) has not been signed.

This case raises the issue of whether a real estate brokerage is entitled to a portion of the commission from the listing brokerage after a commercial sale when a Confirmation of Co-operation and Representation (OREA Form 320) has not been signed.

The registered salesperson (Ms. Sherrard) at the buyer’s brokerage had taken the buyer to the property and assisted him with the purchase. It is not clear whether she formally presented the buyer's offer, although she prepared it. She was with the buyer at the crucial negotiation when the buyer and seller dealt with the offer directly in the presence of the listing representation.

On page 4 of the form of offer (entitled "Agreement of Purchase and Sale Commercial", OREA Form 500) as presented to the seller and the listing brokerage, which formed the final agreement, beneath the signatures of the parties to the transaction, there is a section called “Information on Brokerages.” The co-operating brokerage acting for the buyer was identified there as “Royal LePage First Contact Realty, Brokerage” with its address and telephone number. However, the space for the listing brokerage was left blank.

The seller had agreed to pay the listing representative (Jain) a commission of 4.9 per cent, with 2.4 per cent to be paid to any co-operating broker. The buyer had signed a Buyer Representation Agreement (BRA) with Royal LePage with the help of Ms. Sherrard.

A dispute arose as to whether Ms. Sherrard had identified herself as the buyer’s representative and acted as his "agent". As the judge pointed out, normally the issue of whether there was a co-operating brokerage would be relatively simple because a confirmation form would have been signed prior to the presentation of any offer. For whatever reason, that did not happen.

The judge was “especially critical of Ms. Sherrard in this regard because in doing what she did or failed to do under paragraph 3 of the BRA (i.e. obtain the listing brokerage's acknowledgment of the co-operating brokerage's claim before or contemporaneous with the offer), she risked loss of commission by her employer and the potential liability of her principal for the 2.4% commission.” However, the judge ruled that Ms. Sherrard was the effective cause of the sale and took an active role in facilitating the firming up of the deal and its successful closing. Therefore, he ruled that she was entitled to commission of $112,800.

Sherrard v Jain 2010 ONSC 4071

MERV'S COMMENTS
The judge was not happy with Ms. Sherrard’s conduct, although he ruled in her favour in the basic case. However, he noted that there might be a “substantial discount” in any costs that might be awarded due to “the unsatisfactory way in which she dealt with or failed to deal with her brokerage's position as the co-operating brokerage.” That could be a costly oversight.

OREA has prepared forms that can be used in such situations and has seminars dealing with them. This case shows why they should be used.

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Mortgage broker re-licensing education New and revised forms for 2012 from OREA

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Ontario Real Estate Association

Jean-Adrien Delicano

Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246