By Shaneka Shaw Taylor & Princess Okechukwu
Receiving a commission is every agent’s expectation when their efforts result in the lease or sale of a property. In Ngai v. Fufa Limited, the Ontario Superior Court of Justice decided that notwithstanding the agents’ efforts in attempting to negotiate a deal, the absence of a valid and subsisting agreement between a seller and her agent invalidated the agent’s claim to commission from a sale.
Real estate agents James Ngai and Meir Sharvit each claimed that he had a valid commission agreement with the seller, Fufa Limited, to be compensated if his efforts resulted in a sale of a multi-residential property. Ngai and Lisa Lee (the principal of Fufa Limited) had signed a listing agreement on April 30, 2010, which expired on July 29, 2010. The listing agreement included a holdover period of 60 days to Sept. 27, 2010. The listing agreement provided that a commission of 2.75 per cent of the sale price was to be paid to Ngai, if there was a sale.
Ngai proceeded to market the property, which resulted in negotiations with prospective buyer Hollyburn Properties, and an offer from it. Around the same period of Hollyburn’s offer, Lee received another offer through Ngai from a prospective buyer, O’Shanter Development.
Ngai agreed to reduce his commission to two per cent if he successfully sold the property to O’Shanter; however, that sale never happened.
In and around the same time, Lee verbally agreed to retain Sharvit to solicit offers from other potential purchasers. No specific terms were discussed between the two including whether Sharvit would be paid a commission and if so, how much. Both Sharvit and Ngai attempted brokering a deal with Hollyburn Properties. Both were unsuccessful. On May 18, 2011, Lee and Hollyburn Properties privately negotiated a deal directly, without the agents. The agents sued Lee for commission for their efforts in the sale of the property to Hollyburn.
The claim by Ngai:
Ngai argued that the reduction of his commission on the failed O’Shanter transaction created a new agreement, which entitled him to a commission from the Hollyburn sale. The court found that Ngai’s argument has no basis in fact or law.
The court found that the existence of a Listing Agreement between Ngai and Lee did not give rise to any entitlement to a commission, because the sale of the property to Hollyburn was finalized months after the expiration of the agreement (and the important holdover period) and without Ngai’s efforts.
The claim by Sharvit:
One of Sharvit’s arguments was that the verbal agreement between himself and Lee was enforceable. The court disagreed, finding that the verbal agreement was non-enforceable, as a verbal agreement to “entertain” offers and discuss a commission later was too vague to be enforceable. In addition, the court found that Sharvit’s effort in the initial attempt of the sale of the property was not instrumental in the final sale because of the existence of subsequent intervening circumstances, (such as Lee’s attempt to procure an overseas purchaser and the final sale occurring months later from a re-initiated contact by Lee). These series of events, the court found, broke the chain of effective cause of the sale of the property.
Further, previous courts have held that in the absence of a contract, an agent is not entitled to be paid the equivalent of a commission based on the doctrine of unjust enrichment, as was the case in William Allan Real Estate v. Robichaud. Therefore, neither Ngai nor Sharvit were entitled to commission from Lee on the doctrine of unjust enrichment. Ngai and Sharvit’s claims against the seller were dismissed.
An integral factor to determining if an agent is entitled to commission from a sale turns not only on the agent’s efforts in procuring an actual buyer but also on the terms of the listing agreement including during the holdover period. The provisions of REBBA and the Code of Ethics require agents to avoid the creation of ambiguity and confusion that can lead to an unenforceable agreement.
Princess Okechukwu is an articling student with Boghosian + Allen LLP. She obtained her law degree from the University of South Wales and is looking forward to being called to the bar in 2020.