“As a REALTOR®, I received 50% of the sales commission, but the presale project was cancelled. Am I entitled to keep the commission?
Most residential sales have a commission agreement with the REALTOR® with specific clauses. One such clause is analyzed below:
Is a statement saying, “All commissions shall be deemed to have been earned upon successful completion of the transaction”, enforceable?
Yes, a statement in a real estate commission agreement specifying that “All commissions shall be deemed to have been earned upon successful completion of the transaction” is generally enforceable in Canada. The courts consistently uphold clear contractual language that establishes the completion of the sale as a condition precedent to the payment of commission. However, the enforceability can be challenged if the contractual language is ambiguous or if the non-completion results from the bad faith or oppressive conduct of the party responsible for paying the commission.
The core principle is that a realtor’s® right to a commission is governed by the terms of their contract. If the contract makes the commission contingent on an event, and that event does not occur, no commission is payable. This was the central issue in Poon v Sultan Realty (2015), ONSC, where a buyer sought the return of a commission paid for a condominium unit purchase that was never completed because the builder failed. The Buyer Representation Agreement (BRA) stated the commission was to be paid “once assignment of APS has been successfully completed.” The court found this wording, when read with other clauses, to be contradictory and ambiguous. Applying the principle of contra proferentem, the court construed the ambiguity against the realty company that drafted the agreement. The court held:
[19] Jurisprudence has established that any contradiction or ambiguity in a contract will be construed contra proferentem against its maker. In my view the “successful completion” wording is sufficiently contradictory and ambiguous in the circumstances of this case and I conclude that it be construed contra proferentem against the defendants as the makers of the contract.
Since the transaction never closed and the non-completion was not the buyer’s fault, the court ordered the commission to be returned. This case underscores that the term “successful completion” will likely be interpreted by courts as the final closing of the sale, not merely the signing of an agreement of purchase and sale, especially in a presale context where the project’s ultimate completion is not guaranteed.
While a clear clause is typically enforceable, a developer or seller cannot act in bad faith to prevent the completion of a transaction simply to avoid paying commissions. The Ontario Superior Court dealt with such a scenario in a series of cases involving the Portofino Riverside Tower project. In Valente v Portofino Riverside Tower (2007), ONSC, the court found that the developer had engaged in corporate restructuring specifically to avoid its commission obligations under an exclusive listing agreement. The court granted the realtor® relief under the oppression remedy provisions of the Ontario Business Corporations Act, finding the developer’s conduct was “oppressive or unfairly prejudicial to or that unfairly disregards the interests of” the realtor® as a creditor. The court concluded:
[77] …I find here, principally on the oral and documentary evidence provided by Capaldi, that the “corporate restructuring” took place in the way it did primarily in an effort to “get rid of the commissions” which not only disregarded the interest of the plaintiff, but quite apparently was intended to block any efforts by the plaintiff to collect commissions due, and future commissions that should have come due under the exclusive listing agreement.
This principle was supported by cases like Gestion Trans-Tek Inc. v Shipment Systems Strategies Ltd. (2001), ONSC, which established that using corporate restructuring to avoid exposure to a judgment is sufficient to attract oppression relief.
Furthermore, commission agreements for large presale projects can be complex, with payment structured in stages. In Valente v Portofino Riverside Tower (2010), ONSC, the listing agreement stipulated that 50% of the commission was payable once the necessary pre-sales were achieved to satisfy financing conditions, with the remainder due “upon the completion of each sale.” This demonstrates that the parties can contractually define different trigger points for when a commission, or a portion of it, is “earned.” In a related decision, Valente v Capaldi (2008), ONSC, the court determined the precise date on which this pre-sale condition was met, triggering the developer’s obligation to pay the first half of the commissions.
It is also a fundamental tenet of contract law that courts will not rewrite a poorly negotiated agreement for the parties. The Supreme Court of Canada in Jedfro Investments v Jacyk (2007), SCC affirmed the general rule “that it is not the function of the court to rewrite a contract for the parties. Nor is it their role to relieve one of the parties against the consequences of an improvident contract”. Therefore, a realtor® who agrees to a clear “earned on completion” clause runs the risk of non-payment if the project fails for reasons outside the developer’s control, such as in a receivership situation as seen in bcIMC Construction Fund Corporation v Chandler (2008), BCSC.
In conclusion, a clause making a real estate commission earned “upon successful completion of the transaction” is enforceable. However, its application depends heavily on the specific facts. Courts will interpret “successful completion” as the final closing, will construe any ambiguity against the drafter (typically the realtor®), and will not allow a party to use bad faith or oppressive conduct to engineer a non-completion to avoid paying a commission.