The Holdover Period, Real Estate Commissions and Listing Agreements
Sellers should be weary and concerned with agreeing to a holdover period as defined in a typical listing agreement to offer to sell a property. The same can be said about Realtors (real estate sales representatives, brokers and brokerages) who take over a listing immediately upon its expiry or termination, that was previously listed with a different Realtor. For illustrative purposes a typical commission and holdover clause found in the Ontario Real Estate Association (“OREA”) listing agreement available for the Toronto Real Estate Board (“TREB”) members is as follows:
“COMMISSION: In consideration of the Listing Brokerage listing the Property, the Seller agrees to pay the Listing Brokerage a commission of……% of the sale price of the Property or…
for any valid offer to purchase the Property from any source whatsoever obtained during the Listing Period and on the terms and conditions set out in this Agreement OR such other terms and conditions as the Seller may accept. The Seller further agrees to pay such commission as calculated above if an agreement to purchase is agreed to or accepted by the Seller or anyone on the Seller’s behalf within………. days after the expiration of the Listing Period (Holdover Period), so long as such agreement is with anyone who was introduced to the Property from any source whatsoever during the Listing Period or shown the Property during the Listing Period. If, however, the offer for the purchase of the Property is pursuant to a new agreement in writing to pay commission to another registered real estate brokerage, the Seller’s liability for commission shall be reduced by the amount paid by the Seller under the new agreement. 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 default or neglect, said commission to be payable on the date set for completion of the purchase of the Property. Any deposit in respect of any agreement where the transaction has been completed shall first be applied to reduce the commission payable. Should such amounts paid to the Listing Brokerage from the deposit or by the Seller’s solicitor not be sufficient, the Seller shall be liable to pay to the Listing Brokerage on demand, any deficiency in commission and taxes owing on such commission. All amounts set out as commission are to be paid plus applicable taxes on such commission.
At first glance the language used makes it clear that the commission is payable on “any” offer to purchase that closes and on “any” offer that does not close at the fault of the seller; and from “any” source during the listing period and for an additional number of days after the listing period (i.e. the holdover period); and this is payable so long as the source (the offeror or purchaser) was introduced to the property from “any” source whatsoever. Thus, the listing agreement is designed to capture any offer to purchase regardless of who brings the offeror (i.e. purchaser) or how the offeror discovers the property during the listing period, and regardless of when the offer to purchase is submitted so long as the offeror was introduced to the property within the listing period and so long as the offer was submitted before the end of the holdover period. Now as a Seller or Realtor, contracts involving real estate are put down in writing for a reason, not only because it is the law, but because you cannot escape liability by failing to read or ask questions as to what you are signing. Meaning, a Seller cannot argue that the holdover period was not pointed out or brought to their attention. Also, case law has made it clear that a Seller cannot escape a listing agreement regardless of what communication they may have had with the Realtor or if there was a breakdown in the relationship, unless it is in writing whereby the Realtor agrees to terminate and release the Seller from its obligations under the listing agreement. The listing agreement also does not require the Realtor to have had direct contact with the offeror or purchaser or to have shown them the property. This leads to the next point in the use of the word of “introduced”. Case law has awarded commissions in scenarios where the Realtor was able to prove with real evidence that the offeror or purchaser was some how made aware of the property during the listing period, even if the offeror or purchaser had not seen the property until during the holdover period. Thus, the key factor here is that the offeror or purchaser must be made aware of the property during the listing period, such as by way of direct communication from the listing Realtor or having sent their own Realtor (buyers realtor) to perhaps view the property etc… Obviously it would be difficult for a Realtor to prove that an offeror or purchaser was made aware of the property during the listing period unless they can show evidence such as the offeror or purchaser having visited the property or that the offeror or purchase had actually spoken to the listing Realtor about the property, or even that the listing Realtor had spoken to the offeror’s or purchaser’s own Realtor (buyers realtor). Its the difficulty of being able to prove that an offeror or purchaser was introduced to a property without proper record keeping and real evidence that often results in many Realtors forgoing to enforce the holdover period. However, many cases have been won strictly on oral testimony, where under oath the offerer or purchaser admitted to having been made aware of the property during the listing period. This is why many Realtors will often have sign-up sheets, confirmation of showings, and follow-up communications with potential offerors or purchasers or their realtors after having shown the property to them or having discussed same over the phone or via email. Lastly, the scenarios mentioned above are more so in instances when a Seller sells their property privately during the holdover period, and not so much in the case where they re-list the property for sale with a different Realtor.
On that note, there is one escape provision from being obligated to paying commissions to your former listing Realtor and that is:
“If, however, the offer for the purchase of the Property is pursuant to a new agreement in writing to pay commission to another registered real estate brokerage, the Seller’s liability for commission shall be reduced by the amount paid by the Seller under the new agreement.” or something similar to that affect!
Therefore, only when re-listing with a different Realtor and commissions payable under the new listing agreement are equal to or higher than those commissions payable under the former listing agreement, will no commissions be payable to the former listing Realtor. That means, if after the termination or expiry of the listing period with one Realtor, the Seller goes ahead and re-lists the property with another Realtor, and during that time which falls during the holdover period of the former listing agreement, an offer to purchase the property is accepted by an offeror or purchaser who was introduced to the property during the former listing period, than commissions will not be payable to the former listing Realtor if the commissions payable to the new listing Realtor is the same or higher than what would have been payable under the former listing agreement. However, if the commissions payable under the new listing agreement are less than the commissions payable under the former listing agreement, and an offer to purchase was accepted during the holdover period stipulated in the former listing agreement by an offeror or purchaser who was introduced to the property during the former listing period, then the difference in commissions that are over and above the commissions payable to the new listing Realtor, would be payable to the former listing Realtor. For example, if the new listing agreement had commissions payable at 4% of the purchase price and the former listing agreement had commissions payable at 5%, then the Seller would be obligated to pay the former listing Realtor 1% of the purchase price plus applicable taxes.
Obviously, it goes without saying, if you are confused over the aforementioned or would just like to apply the interpretation of what you are or had signed to your specific fact situation, call the lawyers at Levy Zavet for assistance!