Why this episode matters: The first episode in our new five-part series depicts how a safety clause in an exclusive representation agreement establishes your right to a fee earned after the retainer period ends.
Perfecting your right to a fee for due diligence efforts
A safety clause fee provision in a seller representation agreement establishes a fee is earned by the seller broker when:
- a prospective buyer contacts the seller broker or their agent during the representation period requesting additional information on the property;
- the prospective buyer is given a marketing package containing detailed property information;
- discussions with the prospective buyer end without a sale;
- on expiration of the representation, a notice is delivered to the seller-client identifying the prospective buyer; and
- the prospective buyer and the seller commence negotiations within the safety period which result in the buyer acquiring the property. [See RPI Forms 102, 103.1 and 103.2]
Thus, a safety clause in the fee provision of a representation agreement provides an additional period after the representation period expires for a broker to earn a fee.
Consider an agent of a seller broker employed under a representation agreement who has contact with prospective buyers during the retainer period. Each prospective buyer is delivered a marketing package disclosing detailed information and data on conditions affecting an evaluation of the property.
The agent maintains a registration form in their property file and enters information on each prospective buyer they have contact with, directly or indirectly through a buyer broker. The agent enters each prospect’s name, address, phone number and email address. [See RPI Form 122]
After “follow-up” conversations with the prospective buyers, the buyers have no further contact with the agent or the broker. The representation period expires, and the property remains unsold.
The client is unwilling to renew the representation agreement.
Identifying prospective buyers
Continuing our previous scenario, the broker delivers to the seller-client a copy of the registration form the agent maintained with information on prospective buyers.
The registration form contains a list of prospective buyers the broker or their agent had contact with who were provided additional property information. On delivering the prospective buyer registration form, the broker closes their file on the property and the client.
Later, a prospective buyer the broker registered with the seller enters into negotiations with the seller during the safety clause period.
The buyer eventually acquires the property.
Did the seller broker earn their fee?
Yes! Here, the broker earned a fee since the buyer acquired an interest in the seller’s property, based on:
- fee provisions in the seller representation agreement;
- delivery of the list identifying prospective buyers; and
- the fact an identified buyer entered into negotiations with the seller-client during the safety clause period and later acquired the property.
Likewise, a buyer broker employed under an exclusive buyer representation agreement maintains a list of qualifying properties reviewed with the buyer-client during the representation retainer period.
On expiration of the representation without acquiring a property, the broker delivers the list of properties to the buyer-client. [See RPI Form 123]
During the safety period, the buyer negotiates with the seller of a registered qualifying property and eventually acquires the property. Here, the buyer broker earns a fee, due and payable on closing the transaction.
Editor’s note – In the next episode, we’ll dig deeper into perfecting the right to earn a fee under the safety clause, contrasted against the procuring cause theory.
