Why this is important: The fourth episode of our new series answers the critical question of what happens when a registered buyer purchases property during the safety period for less than the asking price sought under the expired representation.

The prior episode dramatizes the procuring cause theory when the representation lacks a safety clause.

A registered buyer makes an offer during the safety period

Consider a seller-client who contacts a registered buyer regarding the property during the safety clause period under their representation agreement with their broker.

To qualify as a registered buyer, the prospective buyer previously received detailed property information from the seller broker during the period of representation, and was registered with the seller on expiration of the retainer period.

Negotiations result in the prospective buyer purchasing the property for less than the asking price sought in the expired representation agreement.

The seller broker on discovery of the transaction makes a demand on the seller for payment of a fee earned during the safety period.

The seller refuses to pay, claiming the broker is not entitled to a fee since the price paid for the property was less than the asking price they agreed to.

The broker claims they earned a fee under the safety clause since the property was acquired by a registered buyer following negotiations during the safety clause period.

Is the seller broker entitled to their fee when the registered buyer purchases property during the safety period for less than the asking price sought by the seller in the expired representation agreement?

Yes!

Here, the broker is entitled to the agreed fee under the safety clause, since the buyer:

  • reviewed disclosures detailing property information provided by the seller broker during the representation retainer period;
  • was registered as a prospective buyer with the seller on expiration of the representation;
  • negotiated with the seller (or an agent of the seller) during the period covered by the safety clause; and
  • ultimately acquired an interest in the property.

The sale price of the interest acquired in the property has no effect on the enforceability of the safety clause for earning a fee.

Further, the amount of the fee the broker earns is set by the percentage of the price paid (or the fixed fee) stated in the representation agreement fee provisions. [Delbon v. Brazil (1955) 134 CA2d 461]

Thus, the safety clause fully protected collection of the broker’s fee.

Editor’s note – The final episode of the safety clause series will cover properly resolving a seller’s dual liability when changing brokers.