Real Estate

Cottage sellers beware Ontario real estate agents could sue on a default sale

Real Estate Agent Photo by Shutterstock/MIND AND I

A B.C. court case has brought to light the vulnerabilities of selling a cottage.

Three years ago, Mike Armstrong was selling his two B.C. cabins with the help of Century 21 Seaside Realty. According to court documents, a buyer had signed a contract, committing to pay $1.35 million for the cabins. As assurance, the buyer had put down a $70,000 deposit.

Armstrong had signed a limited dual agency agreement with Century 21 Seaside Realty, allowing the real estate brokerage to represent both him and the buyer.

But when the closing date came in July 2018, the buyer was nowhere to be found. The sale was defaulted and Armstrong received the $70,000 deposit.

Fast forward to the spring of 2020 and Armstrong was served with a lawsuit from Century 21 Seaside Realty, demanding $70,875 for commission plus interest on the failed sale. Despite having nothing to do with the disappearance of the buyer, the brokerage claimed that Armstrong owed it commission for completing its end of the sale.

The brokerage backed its claim by pointing to the listing agreement that Armstrong signed when he agreed to use Century 21 Seaside Realty. The listing agreement stated that the real estate agent could pursue commission with a legally enforceable contract of sale, meaning that as long as a buyer had signed a contract saying they intended to pay Armstrong by a certain date, the brokerage could collect commission.

Armstrong has since looked into the listing agreement further and found that the agreements are created by the British Columbia Real Estate Association (BCREA). According to an email sent by Armstrong to Cottage Life, the province’s 10 real estate boards, which work with the BCREA, will not post a seller’s listing to the multiple listing service (MLS), Canada’s central database of property listings, which includes, if a real estate agent has altered the BCREA’s listing agreement. This includes nixing the stipulation about sellers paying commission if the buyer defaults. This means that if Armstrong had asked to have that stipulation removed, he wouldn’t have been allowed to list his properties on Canada’s major listing sites.

The case has yet to appear in court, but it does send up warning flares for anyone attempting to sell a property.

While Ontario’s real estate listing agreements differ slightly from B.C.’s, Ontario property owners could find themselves in a similar situation, said Christine Harminc, a spokesperson for the Real Estate Council of Ontario (RECO), in an email.

“In Ontario, there are provisions in the Ontario Real Estate Association (OREA) contract, which is a template many salespeople and brokerages use, that could allow a brokerage to sue for commission if the deal was breached by one of the parties,” Harminc said. “We’ve seen this on rare occasions with listing brokerages suing for a commission when a seller breach causes the property not to close.”

An Ontario example includes a 2013 ruling by the Ontario Superior Court of Justice between T. L. Willaert Realty Ltd. and Richard Fody. In 2008, Fody employed T. L. Willaert Realty to sell a vacant parcel of land. The brokerage presented Fody with a series of offers from a purchaser, one of which was the full asking price for the land. Fody did not respond to the offers, eventually allowing the listing agreement with the brokerage to expire.

However, the signed listing agreement stated that the brokerage was entitled to five per cent commission if non-completion of the sale was due to the seller’s default or neglect. The brokerage won the case and was paid their five per cent commission.

This instance differs slightly from Armstrong’s case in that Armstrong’s sale was not defaulted because of his neglect. In fact, Armstrong is now lobbying the BCREA to change its listing agreement so that it is written like Ontario’s, which does not require the seller to pay if the buyer defaults, only if the seller breaches the agreement.

To avoid this kind of situation, Harminc said RECO counsels buyers and sellers to make sure they understand contracts or agreements before signing them. “Consulting a real estate lawyer is a good idea, especially if you aren’t certain.”

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