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Brian Madigan LL.B., Broker
BRMadigan@Rogers.com

RE/MAX West Realty Inc.,
Brokerage
Independently owned and operated

96 Rexdale Blvd. 
Toronto, Ontario 


Phone: 416-745-2300

Cell: 647-404-8150 
Toll Free: 1-888-507-0817

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Buyer Representation Agreement Explained (Ontario) Part 6C COMMISSION- HOLDOVER CLAUSE

April 9, 2015 - Updated: April 10, 2015

 

Buyer Representation Agreement Explained (Ontario) Part 6C COMMISSION-HOLDOVER CLAUSE

  

Here is the part of the Agreement dealing with the holdover provision:

 

The Buyer agrees to pay the Brokerage such commission if the Buyer enters into an agreement within .................................days after the expiration of this Agreement (Holdover Period) to purchase or lease any real property shown or introduced to the Buyer from any source whatsoever during the term of this Agreement, provided, however, that if the Buyer enters into a new buyer representation agreement with another registered real estate brokerage after the expiration of this Agreement, the Buyer’s liability to pay commission to the Brokerage shall be reduced by the amount paid to the other brokerage under the new agreement. The Buyer agrees to pay such commission as described above even if a transaction contemplated by an agreement to purchase or lease agreed to or accepted by the Buyer or anyone on the Buyer’s behalf is not completed, if such non-completion is owing or attributable to the Buyers default or neglect. Said commission, plus any applicable taxes, shall be payable on the date set for completion of the purchase of the property or, in the case of a lease or tenancy, the earlier of the date of occupancy by the tenant or the date set for commencement of the lease or tenancy. All amounts set out as commission are to be paid plus applicable taxes on such commission. This Agreement applies for the purchase or lease of one real property. Notwithstanding the foregoing, in the event that the Buyer leases a property, this agreement remains in force as set out herein for the purchase of the leased property or a property of the general description indicated above. The leasing of a property by the Buyer does not terminate this Agreement with respect to the purchase of a property.

 

Part 6C review

 

I will break up the paragraph and offer my commentary in “italics” as usual.

 

The Buyer agrees to pay the Brokerage such commission if the Buyer enters into an agreement within .................................days after the expiration of this Agreement (Holdover Period)

 

This is the introduction to the holdover provision. Remember, this part of the agreement doesn’t even start until the contract is finished. We had a start date and an expiry date. This starts with the moment after the expiry and runs until the completion of the total number of days specified.

 

How long should it be? Well, this particular provision is intended to prevent the “end run”. The agent brings the buyer, and the day later, the seller enters into a contract directly with the buyer leaving out the agent completely. That’s not fair. So how do we prevent this?

 

The approach is to say the commission is payable anyways. This means that the parties might as well continue to have the agent involved and doing some work because the agent is still to be paid.

 

The usual periods would be 90 days in the case of residential property and 180 days in the case of commercial property. Frequently, these periods will be doubled.

 

to purchase or lease any real property

 

This is the event giving rise to the entitlement. There must be a “deal”.

 

shown or introduced to the Buyer from any source whatsoever during the term of this Agreement,

 

The provision does have a condition. There must be a property shown or introduced to the buyer, during the currency of the agreement, that is, the original time period from the start date to expiry.

 

There is one more matter, it says “…from any source whatsoever”. What does that actually mean? It’s very, very broad language. It is intended to mean just what it says: ANY SOURCE! So, if the buyer finds the property himself, on the internet, in a newspaper or on a flyer, then it is COVERED under this holdover provision. The reason is simple, you can never really prove this fact. The time period is relevant, the source is not. The buyer cannot say “….I only came across this property because I saw the for sale sign when I drove down the street”. This is still a source and it is still covered. It is the obligation of the buyer to bring this to the agent’s attention.

 

provided, however, that if the Buyer enters into a new buyer representation agreement with another registered real estate brokerage

 

One small qualifier: if there is a brand new agreement with another brokerage. Note, this cannot be the same brokerage with a different sales representative.

 

after the expiration of this Agreement,

 

Again, we are back to the currency of this agreement. If this second BRA, starts too soon, it will not apply. If this second BRA was in effect dealing with slightly different property, it wouldn’t apply. It MUST start afterwards!

 

the Buyer’s liability to pay commission to the Brokerage shall be reduced by the amount paid to the other brokerage under the new agreement.

 

This slight price break, just works as a set-off. Assuming the second deal is less than the first, there is a top-up. If it is the same, then it’s a break-even. If it’s more, than nothing is payable under the first BRA.

 

The Buyer agrees to pay such commission as described above

 

This is the obligation to make the necessary payment. The buyer pays the second agent whatever they agreed PLUS the “top-up” amount under the first BRA.

 

Why? Once, the first deal is struck, the buyer can always find someone to do it cheaper. This again is designed to prevent the buyer from making a “partial end-run”.

 

even if a transaction contemplated by an agreement to purchase or lease agreed to or accepted by the Buyer or anyone on the Buyer’s behalf is not completed,

 

The deal doesn’t actually have to close.

 

if such non-completion is owing or attributable to the Buyers default or neglect.

 

The qualifier here is something attributable to the buyer. So, the buyer cannot organize and co-ordinate his own default to his own advantage, But, nothing is said here about the seller. The commission is still payable in the event of the seller’s default. Remember, the deal is for “assistance” not a completed real estate deal.

 

Said commission, plus any applicable taxes, shall be payable on the date set for completion

 

The commission and the HST are payable on the date for completion not UPON completion. So, whatever date that was, is the date required for payment.

 

of the purchase of the property or,

 

The purchase date is relatively clear. It’s set out on the first page of the agreement. In the case of a commercial property for development, there can be a number of extensions often covering 24 to 36 months. It must either be clear on its face, or easily capable of being ascertained. If it is not, then the contract would lack one of the essential terms and would not be enforceable.

 

in the case of a lease or tenancy, the earlier of the date of occupancy by the tenant or the date set for commencement of the lease or tenancy.

 

Tenancies are always a little more complicated. So, it’s either the day the tenant moves in, or the day that the tenant starts paying rent, whichever comes first.

 

All amounts set out as commission are to be paid plus applicable taxes on such commission.

 

There is HST payable in addition to the amount set forth for commission. It’s not a gross amount or HST included arrangement.

 

This Agreement applies for the purchase or lease of one real property.

 

One deal, then move on and sign up another BRA for a second property. So, if a buyer likes a cottage property being offered by a builder, he only pays on the first deal. This can be tricky. Assume the builder has two lots, both vacant and he sells them both with a cottage to be built on the second, the commission is payable only upon the vacant lot which was acquired first.

 

Notwithstanding the foregoing, in the event that the Buyer leases a property, this agreement remains in force as set out herein for the purchase of the leased property

 

Here is another issue. If the buyer rents a property, the BRA will extend to include the purchase, but the time periods naturally will continue to apply. Assume the buyer rents the cottage for the summer just to try it out. If he buys it, then commission is payable either during the currency of the agreement (6 months), or during the holdover period (180 days), or if the deal is not struck until the following summer, then no commission is payable at all.

 

Ok, that was Interpretation #1. It’s also possible and open to interpretation that the lease triggers an event and the commission will be payable anytime whatsoever, provide, of course, that the lease is in effect (that could be 5 years). In this interpretation, the currency of the agreement and the holdover period would not come into play. So, if this is a potential issue, then spell it out clearly one way or the other.

 

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com


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Brian Madigan LL.B. Broker

RE/MAX West Realty Inc. Brokerage

Independently owned and operated

96 Rexdale Blvd. , Toronto Ontario,

Phone: 416-745-2300

BRMadigan@Rogers.com

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