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Bulletin

The real estate brokerage contract: a simple hunting licence?

Fasken
Reading Time 4 minute read
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Litigation & Dispute Resolution Bulletin

"a brokerage contract is like a hunting licence
 in the sense that, as in hunting, the broker
 may spend much time and effort but fail to achieve his goal"

- Gérard Vincent La Forest J. -

The recent judgment in Société en commandite Place Mullins v. Services immobiliers Diane Bisson inc., (2015 SCC 36) gave the highest court in the land the opportunity to restate to what extent the real estate broker's remuneration is hit-or-miss. In passing, the Court identified certain teachings regarding real estate brokerage contracts and promises to purchase which are likely to be of interest to brokers as well as real estate promoters and developers.

Background

Using the standard form recommended by the Association des courtiers et agents immobiliers du Québec (Quebec Association of Real Estate Brokers and Agents), an owner entrusted the sale of its immovable to a real estate broker.

During the period covered by the brokerage contract, a promisor-buyer submitted a promise to purchase. This promise gave the promisor‑buyer a right to withdraw the promise. In the course of his due diligence, the promisor-buyer discovered that the property's soil was contaminated and demanded that the promisor-seller decontaminate it at its own expense. The latter refused and, after repeated negotiations, the sale fell through.

Faced with this situation, the real estate broker requested payment of its commission, claiming that "an agreement to sell the IMMOVABLE", within the meaning of the brokerage contract, had been reached. Alternatively, it claimed that the promisor-seller's refusal to decontaminate constituted an intentional act on its part preventing the performance of the contract.

What is an "agreement to sell the IMMOVABLE"?

Pursuant to clause 6.1(3) of the brokerage contract, the broker is entitled to the expected commission as of the signing of an "agreement to sell the IMMOVABLE". The Court stipulated that the wording of this provision does not require that a notarized deed of sale take place for the commission to be owed to the broker. A promise to purchase duly accepted by the promisor-seller may, under certain circumstances, constitute an "agreement to sell the IMMOVABLE".

However, the Court held that as long as a promise to purchase does not unconditionally bind the two parties, and that it is not yet possible for one of them to bring an action to compel transfer of title, it cannot be argued that an "agreement to sell the IMMOVABLE", within the meaning of clause 6.1(3) of the brokerage contract, had been reached.

In the case at bar, the promisor-buyer availed himself of the resolutory condition set out in its favour in the promise to purchase. The promisor-buyer's written request to decontaminate the land constituted a new offer to the promisor-seller which was never accepted.

The promisor-seller's refusal to decontaminate the immovable

The broker also claimed that the promisor-seller could not refuse to decontaminate the land without simultaneously breaching clause 6.1(4) of the brokerage contract and section 1503 of the Civil Code of Québec ("C.C.Q."). Both these provisions cover the situation where the promisor-seller intentionally prevents the free performance of the brokerage contract and, consequently, the sale of the immovable. The Court stipulate that, in order to rely on these provisions, the broker must show that the promisor-seller committed a fault. This fault may arise from a positive action or omission to perform an obligation set out in the brokerage contract or in the promise to purchase.

After analyzing the obligations contained in the promise to purchase and the brokerage contract, the Court found that the promisor-seller's lack of knowledge of the contamination prevented it from attributing a fault that would have caused the sale to fall through.

Lastly, the Court pointed out that the legal warranties under articles 1723 and 1725 C.C.Q. remain inapplicable since no sale took place between the  parties. The broker cannot then claim that the promisor-seller breached such obligations by refusing to decontaminate the land.

The seller's declarations cannot constitute warranties

As Part 7 of the brokerage contract contains the "Seller's Declarations", the Court considered whether the refusal to decontaminate the land contravened such declarations. The Court indicated that these declarations by the promisor-seller cannot be likened to warranties. Thus, a declaration to the effect that the "IMMOVABLE complies with environmental protection laws and regulations" cannot, in the absence of the promisor-seller's knowledge of the land's contamination, constitute a commitment on its part to decontaminate the land.

The Supreme Court decision is available online.

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