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Representation Agreements: Realty Brokers and Realty Buyers and Arguments of Enforceability
Question: What are the main legal considerations regarding the enforceability of Broker Representation Agreements in Ontario?
Answer: Broker Representation Agreements, like the OREA Form 300, are legally binding and their enforceability hinges on clear written terms, as established by cases such as Sun v. Mani, 2024 CanLII 35486. Buyers challenging these agreements must present written evidence of any modifications, as oral representations typically do not hold up against the established parol evidence rule. This ensures clarity and reliability in real estate transactions.
Enforceability of Broker Representation Agreements
In Ontario, the OREA Form 300 serves as the document known as a Broker Representation Agreement. The Broker Representation Agreement establishes the written contractual terms between prospective purchasers and real estate brokerages and involves specific locations and will be applicable for a set timeframe. Legal disputes alleging breach of a Broker Representation Agreement are common and will frequently arise as proceedings of the Small Claims Court because the disputed commission sums are often within the thirty-five thousand ($35,000.00) dollar per Plaintiff limit of the Small Claims Court. Interestingly, the outcomes for these types of cases will sometimes favour the realty brokerage and sometimes favour the realty buyer as these cases will turn based upon each unique case scenario.
The Law
A common example of commission disputes under a Broker Representation Agreement is found in the Sun v. Mani, 2024 CanLII 35486, case wherein it was stated:
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.
In the Sun matter, the argument by the Defendant was that an unwritten agreement was either part of the initial Broker Representation Agreement or was subsequently integrated into the Broker Representation Agreement by way of an oral discussion with the realty agent. However, the court judge rejected this argument and leaned upon the parol evidence rule which is a legal principle aimed at ensuring certainty within contracts. Accordingly, any buyer wishing to challenge the expressly written terms within a Broker Representation Agreement would require clearly written evidence of an amendment to the Broker Representation Agreement. The application of the parol evidence rule, precluding the replacement of a written agreement based upon purported verbal amendments, was highlighted in the Sun case, via reference Fung v. Decca Homes Limited, 2019 ONCA 848, which stated:
[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. ...
Within cases disputing the enforceability of a Broker Representation Agreement, such as Sun, which among other cases cited Apex Results Realty Inc. v. Zaman, 2018 ONSC 7387, and First Contact Realty Ltd. v. Prime Real Estate Holdings Corporation, 2015 ONSC 5511, it is shown that the written terms within a Broker Representation Agreement will stand strong unless there exists an amendment in writing. In this respect, these cases all similarly state:
[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.
As explained above, a buyer attempting to nullify the effects of a Broker Representation Agreement must demonstrate that the initial consent to the contract was tainted by a wrongful act of the realty agent. This requirement means that the buyer must present a case that is grounded in contract law principles that transcends mere regret over signing the Broker Representation Agreement document which legally binds the buyer to the terms within.
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.