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Representation Agreements: Realty Brokers and Realty Buyers and Arguments of Enforceability
Question: How enforceable is a Broker Representation Agreement in Ontario real estate?
Answer: In Ontario, Broker Representation Agreements, like the OREA Form 300, are generally enforceable due to their detailed written terms, covering aspects such as geographical boundaries, timeframes, and commissions. Courts typically uphold these agreements unless concrete written evidence shows amendments or errors. Resolving disputes may require legal intervention, especially if misrepresentation is alleged. Strengthen your position—Olson Craig Legal offers a free consultation for tailored legal advice on your real estate contract concerns.
Enforceability of Broker Representation Agreements
Within the realm of realty business in Ontario, the OREA Form 300, better known as the Broker Representation Agreement, is a common contract used to establish a relationship between a would-be buyer and a realty brokerage firm. The Broker Representation Agreement contains terms that limit the contract in geographical boundary and time period, among other things, including commissions payable. Legal disagreements stemming from the alleged failure to adhere to a Broker Representation Agreement are a frequent; especially within the Small Claims Court whereas disputes over commissions supposedly owed per a Broker Representation Agreement often falls within the thirty-five thousand ($35,000.00) dollar per Plaintiff monetary jurisdiction of the Small Claims Court. Interestingly, court decisions are often varied as the legal issues underpinning Broker Representation Agreement disputes can turn either way depending upon the unique details of each case.
The Law
The dispute in Sun v. Mani, 2024 CanLII 35486, serves as an example of issues involving commission payment under a Broker Representation Agreement. Observations from the Sun case include:
The Law Surrounding the Buyer Representation Agreement (OREA FORM 300)
[22] Disputes surrounding the Buyer Representation Agreement (hereinafter “BRA”) are frequent visitors to the Superior Court and the Small Claims Court.
[23] The front page of the BRA dictates the following, “The Buyer hereby gives the brokerage the exclusive and irrevocable authority to act as the Buyer’s agent commencing at 9 a.m. on the 3rd day of May, 2021 and expiring at 11:59 p.m. on the 31 day of August, 2021.”
[24] On the portion for commission, it reads (my emphasis added):
2. COMMISSION: In consideration of the Brokerage undertaking to assist the Buyer, the Buyer agrees to pay commission to the Brokerage as follows: If, during the currency of this Agreement, the Buyer enters into an agreement to purchase or lease a real property of the general description indicated above, the Buyer agrees the Brokerage is entitled to receive and retain any commission offered by a listing brokerage or by the seller. The Buyer understands that the amount of commission offered by a listing brokerage or by the seller may be greater or less than the commission stated below. The Buyer understands that the Brokerage will inform the Buyer of the amount of commission to be paid to the Brokerage by the listing brokerage or the seller at the earliest practical opportunity. The Buyer acknowledges that the payment of any commission by the listing brokerage or the seller will not make the Brokerage either the agent or sub-agent of the listing brokerage or the seller.
If, during the currency of this Agreement, the Buyer enters into an agreement to purchase any property of the general description indicated above, the Buyer agrees that the Brokerage is entitled to be paid a commission of 2.5% of the sale price of the property or [as per MLS] (entered term).
The Buyer agrees to pay directly to the Brokerage any deficiency between this amount and the amount, if any, to be paid to the Brokerage by a listing brokerage or by the seller. The Buyer understands that if the Brokerage is not to be paid any commission by a listing brokerage or by the seller, the Buyer will pay the Brokerage the full amount of commission indicated above.
Within the Sun case, the Defendant tried to argue that the Broker Representation Agreement was altered by a verbal term uttered by the realty agent promising to refrain from any subsequent attempt to enforce the Broker Representation Agreement. This argument, purporting that the written terms were altered by a verbal term, was unaccepted by the court whereas the court adhered to the parol evidence rule which a contract law doctrine intended to ensure certainty of contracts. The primacy of the parol evidence rule, which mitigates against the supplanting of written agreements with allegedly spoken terms, was underscored in the Sun case with reference to and reliance upon Fung v. Decca Homes Limited, 2019 ONCA 848, wherein it was said:
[5] We see no error in the application judge’s application of the parole evidence rule in the circumstances of this case: Hawrish v. Bank of Montreal, 1969 CanLII 2 (SCC), [1969] S.C.R. 515, at p. 520. Even if there was a collateral oral agreement, something that is disputed by the respondent, that oral agreement could not contradict the written agreement. ...
The parol evidence rule appears to often arise in cases disputing enforcement of a Broker Representation Agreement whereas within Sun, while citing Apex Results Realty Inc. v. Zaman, 2018 ONSC 7387, and First Contact Realty Ltd. v. Prime Real Estate Holdings Corporation, 2015 ONSC 5511, all stand for the proposition that the written terms within a Broker Representation Agreement require amendment in writing rather than merely a purported verbal amendment. Specifically, these cases stated:
[35] In our matter, Mr. Mani alleges that Mr. Sun stated to him that the BRA was only a “formality” and that it would not enforced. This appears to me to be a modification of the fundamental terms and conditions of the contract. There is also no evidence in writing of this oral representation. The Parole Evidence Rule is applicable here, which holds that evidence of an oral agreement cannot prevail over the clear written contractual terms.[3]
[36] In Apex Results Realty Inc. v. Zaman, 2018 ONSC 7387[4], the brokerage brought a summary judgment motion in Superior Court for payment of commissions owed on two separate properties during the effective representation period of the BRA. Justice Turnbull ruled in the brokerage’s favour citing the terms of the BRA indicated that commission was payable to the brokerage by the buyer if the buyer purchased a property during the currency of the BRA.[5] In coming to his decision, Justice Turnbull cited a decision of Justice Healey in First Contact Realty Ltd. v. Prime Real Estate Holdings Corp., 2015 ONSC 5511. This was yet, another summary judgment motion wherein the Defendant buyer alleged that there was an oral agreement to terminate the BRA. Both Justice Healey and Justice Turnbull, in their requisite decisions cited application of the Parole Evidence Rule, restricting evidence of oral evidence in the face of a clearly written and executed contract between parties. Justice Turnbull’s decision was appealed and it was upheld by the Court of Appeal in Apex Results Realty Inc. v. Zaman, 2019 ONCA 766[6].
[53] The parole evidence rule exists to help parties avoid this type of allegation being made by a contracting party. It effectively precludes the admission into evidence of words which would vary or contradict the terms of a written contract between the parties. Without it, it would almost be impossible to have finality or certainty in contractual relations. It further limits the ability of a party to fabricate evidence to vary or change the terms of a written contract. The parole evidence rule centres the court’s attention on the contract and what the parties have reduced to writing. It creates contractual clarity and certainty.
[25] This evidence is insufficient to establish the essential elements of an agreement, as it lacks any specificity with respect to the terms of such agreement, as well as failing to outline the consideration for entering into such an agreement. Hinn provides no details in his affidavit, or elsewhere, of the particulars of such an exchange of ideas leading to the parties forming an intention to terminate the Buyer Representation Agreement. The details are lacking of when, where, how and why such alleged discussions took place.
For a buyer attempting to escape the enforcement of a Broker Representation Agreement, the buyer will, generally, need to prove that Broker Representation Agreement was founded upon improper, and perhaps illicit, statements by a realty agent. The buyer seeking to achieve this endeavour will require the demonstration of a failure to adhere to contract formation principles so to depict a scenario more severe than simple regret.
Conclusion
In the realm of real estate dealings, buyers will encounter the Broker Representation Agreement or as formally known the OREA Form 300. This document sets the terms of engagement between a real estate brokerage and the prospectively property buying client by encapsulating the duties and expectations of both sides. The Broker Representation Agreement stands as a legally binding contract and is grounded upon the common principles of contract law. When it comes to assessing the validity or enforceability of the Broker Representation Agreement, evidence must be presented. This evidence should clearly align with the established norms of contract law, demonstrating whether the prerequisites for a valid contract were met. The fact that the Broker Representation Agreement is an agreement specifically designed for real estate dealings fails to exempt the agreement the general contract law principles. Like any contract, enforceability of a Broker Representation Agreement is judged against the backdrop of common legal principles that apply to contractual agreements. Despite a specialized focus, the Broker Representation Agreement is without uniqueness in the eyes of the law. The Broker Representation Agreement is subject to the same legal scrutiny as any agreement made in other fields of business. This consistency reinforces the idea that, irrespective of the context, the foundational elements of contract law remain applicable, ensuring fairness and mutual agreement in legal and business dealings whether realty focused or otherwise.
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