Toronto Real Estate Lawyers (Part 4): Exclusivity Clause in Buyer Representation Agreements…
Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to buying, selling or renting real estate, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario real estate lawyers registered to help you with your purchase, sale, and lease of real estate.
In this blog, I’ll be talking about the exclusivity clause in buyer representation agreements.
Taking a step back, a buyer representation agreement is the agreement which a Real Estate Salesperson wants their clients (a person looking to buy a home) to sign. It can be signed at any time but it must definitely be signed before an offer is made: s. 14 of the Code of Ethics made under the Real Estate Business and Brokers Act, 2002. It gives the Real Estate Salesperson the exclusive authority for a set period of time to work on your behalf. This protects the Real Estate Salesperson and helps to guarantee that they will get paid.
The standard OREA form that Real Estate Salespeople use includes an exclusivity clause. This clause means that the principal (i.e. the client) gives the Salesperson the exclusive and irrevocable authority to act as their agent for a set period of time. The client will also represent and warrant in this agreement that they are not a party to another buyer representation agreement or similar agreement.
Sometimes, a buyer who signs this agreement will breach it by engaging another Realtor and concluding a deal through them. The problem here is that the buyer (1) had a buyer representation agreement with another Realtor and (2) may have lied to their present Realtor by indicating that they did not have such a deal. The next thing the buyer realizes is that they are being sought after and perhaps even sued in small claims court by the original Realtor for the commissions that should have gone to them.
Problems can arise where a buyer and Realtor never sign a buyer representation agreement. Take the case of Stoicevski v. Nelson, 2007 CarswellOnt 8606. There, a buyer engaged Realtor “A” to look for properties on his behalf. No buyer representation agreement was ever signed. Realtor “A” identified numerous suitable properties, arranged inspections for the buyer, and made various offers on behalf of the buyer (which were never accepted). Four of those failed offers were made in respect of one property and all of them were accompanied by a “Confirmation of Co-operating and Representation” agreement, which indicated that Realtor “A” would receive a commission if a deal went through. The buyer, looking to save some money, engaged Realtor “B” (who would accept a lower commission) to make an offer on his behalf for that property. Using Realtor “B”, the buyer submitted an offer which was accepted. Realtor “A” then sued the buyer for lost commissions. The Ontario Superior Court of Justice found that, even though no buyer representation agreement had been entered into between the buyer and Realtor “A”, the buyer was still liable to pay Realtor “A” the commission owed. The Court reasoned that the buyer’s expectation to pay Realtor “A” commissions if a deal had gone through, coupled with the buyer’s actions – namely, working with Realtor “A” (both generally and specifically with respect to the property that was ultimately purchased) and then engaging Realtor “B” to save money – constituted an unjust enrichment. This case demonstrates that, in these circumstances, the absence of a buyer representation agreement may nevertheless make a buyer who engages multiple Realtors liable for commissions owed.
Overall, if a buyer is looking to get out a buyer representation agreement without the headache of litigation, they should get a written release of liability from the Realtor. Assuming this release is obtained and entered into properly, it should prove to be a good defence in case litigation arises thereafter.
