January 24th - 2013

Legal Beat: Document in commercial case means what it says

The owners of a hotel first listed their property for sale with a RE/MAX brokerage, where Angelo Muraco worked as their REALTOR®. Although several potential buyers expressed interest, no sale occurred.

The owners of a hotel first listed their property for sale with a RE/MAX brokerage, where Angelo Muraco worked as their REALTOR®. Although several potential buyers expressed interest, no sale occurred.

The owners then listed with another company, PKF, which prepared an Exclusive Listing Agreement (ELA). The document provided for a two-month term beginning in May that expired on July 11, 2008. The ELA stipulated a 2 per cent commission that would be reduced to 1 per cent if the buyer was on an appended list. The hotel did not sell during the term of the ELA.

In September 2008, one of the previous prospects then signed an agreement of purchase and sale (APS) and a lease through RE/MAX, the first brokerage. The buyer took possession of the hotel at that point. The APS was dated September 2008 and that transaction closed in October 2009, when the hotel sold for $13 million. The seller paid RE/MAX a commission of $100,000. Nothing was paid to PKF, which sued the buyer. It argued that the ELA provided for the following:

“Owner agrees to pay broker a sales commission in accordance with clause 11 herein. The commission shall be earned for services rendered if, during the term (a) the property is sold to a purchaser procured by the broker, owner or anyone else; (b) a purchaser is procured by broker, owner or anyone else who is ready, willing and able to purchase the property at the price and on the terms above-stated, or on any other price and terms agreeable to owner; (c) any contract for the sale of the property is entered into by owner;

As used in this agreement, the term “sale” shall include an exchange of the property, and also the granting of an option to purchase the property. Owner agrees that in the event such an option is granted, owner shall pay broker a sales commission in accordance with clause 11 herein on the price paid for the option and for any extensions thereof. This commission shall be paid upon receipt by owner of any such payment(s).

Owner further agrees that owner shall pay broker a commission in accordance with clause 11 if, within one hundred and eighty (180) calendar days after the expiration or termination of the term, the property is sold to, or owner entered into a contract of sale of the property with, or negotiations continue, resume or commence and thereafter continue leading to a sale of the property to any person or entity (including his/her/its successors, assigns or affiliates) with whom broker has negotiated (either directly or through another broker or agent) or to whom the property has been submitted prior to the expiration or termination of the term.”

The judge found that there was not a sale as defined in the ELA during the term and that PKF had not earned a commission for services rendered by it during the term. The actual transaction was not closed within the term of the ELA or the holdover period and PKF’s lawsuit was unsuccessful.

PKF Hotel Realty v 3414574 Canada Inc. 2010 ONSC 3725

MERV'S COMMENTS
Courts interpret contracts based on their specific language. The buyer of the hotel was found through the first REALTOR®, Muraco. That same buyer had no connection to PKF. The judge therefore found no evidence that PKF was due any commission in this case. This ELA was prepared by the brokerage and does not appear to be a “standard form” used by many Ontario REALTORS®. Be careful with the documents you draft, because they may mean what they say.

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