Defaulting Sellers and Commission Entitlement
Shortly before closing the Sellers have second thoughts. They never should have sold. They don’t want to move and they don’t want to find another place.
They decide not to move and wonder what are their rights!
Do they have to move?
The answer here is a very murky “maybe and maybe not”!
If the Buyers want in “for sure”, then we have a problem. There are two remedies generally available to the Buyers:
1) Specific Performance, and
Specific performance is referred to as an “extraordinary” remedy by the Courts. It will be awarded if in fact the property is “unique” in some way. Let’s consider a neighbour’s waterfront property which includes a beach. This is very unique. On the other hand, consider a routine, regular, ordinary house in a 500 lot subdivision, all built by the same (average) builder some 15 years ago. Any other house in the same subdivision will do. The Buyer will be forced to acquire that second house and cannot insist upon the first house. If there is a measurable financial loss, then the Buyer will be compensated. There is indeed a “dollar solution” here.
Do they owe a real estate commission?
There is a clause in the Listing Agreement which states:
“The Seller further agrees to pay such commission as calculated above even if the transaction contemplated by an agreement to purchase agreed to or accepted by the Seller or anyone on the Seller’s behalf
is not completed,
if such non-completion is owing or attributable to the Seller’s
said commission to be payable on the date set for completion of the purchase of the Property.”
So, what does that mean? Basically, if the Seller was “at fault” in some way, then the commission is still payable. But, that could be more difficult to prove than you might imagine.
Obviously, there are some issues here and the Sellers require the advice of an experienced lawyer. It looks like it’s about to not close in a short period of time.This may or may not end up being the Seller’s default or neglect. We don’t know at this time.
That will depend upon the Buyer. If the Seller breaches the contract, that doesn’t necessarily mean the Buyer gets the property.
If the Sellers are in breach, they owe damages to the Buyer and the commission to the Listing agent and the Buyer’s agent. If the Listing agent doesn’t want to sue for commission on the Listing Agreement, the Buyer’s agent can.
To have things properly unfold, the Buyer needs to be “ready, willing and able” to complete the transaction on the day of closing. This, just might not happen. If they already think that the deal has gone sour, why arrange for the mortgage funds and incur legal fees? They might simply move on and buy something else.
At that point, the deal didn’t close due to Seller’s default or neglect, it was “mutual”. The Buyers never got their mortgage money!
That also means that the Listing Agent would not be entitled to commission under the current Listing. If you have an aggressive Buyer, then both the Buyer’s agent and the Listing agent would get paid.
What about Anticipatory Breach of Contract?
This could present somewhat of a problem. If this is communicated to the Buyer’s lawyer two weeks ahead of time, then, the possible remedies are specific performance and damages. The tentative information could however be restricted somewhat. In other words, the Seller will not close, but will not agree that this is an anticipatory breach. This means that the Buyer will have to demonstrate that he is “ready, willing and able” to complete the transaction. He will have to secure an appraisal, insurance, mortgage funds and a lawyer to “tender the closing documents”. In many cases, it might simply be easier to move on and acquire another property. Why wait around and litigate? There is a better property around the corner.
So, if there’s no anticipatory breach, then the Buyer will have to be very aggressive and pursue some legal remedies. If that happens, then the agents may still be paid too. But, if we have no anticipatory breach and a conservative, reluctant Buyer, then, it’s more of a challenge for the agents to be paid.
Most of the time, a reluctant Seller will offer money in exchange for the agreement not to pursue any litigation. If this happens, we have an arrangement whereby both parties have executed a mutual release and the entitlement to commission becomes much more difficult.
Brian Madigan LL.B., Broker