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Representation Agreements: Realty Brokers and Realty Buyers and Arguments of Enforceability
Question: What should you know about the enforceability of Broker Representation Agreements in Ontario?
Answer: In Ontario, Broker Representation Agreements, such as the OREA Form 300, are binding legal contracts between a buyer and a real estate brokerage. Disputes over these agreements often arise in Small Claims Court, particularly regarding commission payments, and relying on oral agreements to contest written terms is generally ineffective due to the parol evidence rule. Ajodhia Legal Services can assist you in navigating these complexities to protect your interests in real estate transactions.
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
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. ...
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.
If avoiding the binding terms of a Broker Representation Agreement is the goal, demonstration of how the agreement was entered under false pretenses, such as misstatements by the realty agent, such as through dishonest representations, becomes imperative. The challenging task at hand would be to supply evidence, properly rooted in the principles of contract law, that indicate concerns graver than mere remorse for entering into a Broker Representation Agreement by the buyer.
Conclusion
Engaging in real estate ventures often involves the Broker Representation Agreement, being the OREA Form 300. This contract document formalizes the relationship between a real estate broker and the the client as a buyer by specifying the scope of the duties and responsibilities of both the broker and the buyer. As a contract, the Broker Representation Agreement is governed by the conventional rules of contract law. Challenging the enforceability of a Broker Representation Agreement necessitates evidence that adheres to the general precepts of contract law; and despite specificity of the Broker Representation Agreement to real estate dealings, the agreement is without any peculiar exemption from general contract law principles and is evaluated under the same legal standards as other contractual commitments.
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