What this episode contributes to the story: The third episode of our new series applies the procuring cause theory to an exclusive seller representation agreement which lacks a safety clause, and illustrates how a safety clause in a properly structured representation agreement is always the best practice.
The prior episode depicts how a fee is earned and demanded under the safety clause after the retainer period ends.
Risk mitigation and best practices
Consider a seller who employs a broker under a representation agreement without a safety clause in the fee provisions. During the representation period, the seller broker or their agent are contacted by a buyer who recieves information on the seller-client’s property.
The buyer has difficulty arranging purchase-assist financing. After several discussions, the seller broker and the buyer no longer engage in negotiations.
On expiration of the representation, the property remains unsold and the representation agreement is not renewed.
A few months later, the seller contacts the buyer to see whether they are still interested in purchasing the property. They are, and negotiations resume.
The buyer now has an improved financial situation and is able to arrange financing. As a result, the buyer acquires the property.
On discovery of the sale, the broker makes a demand on the seller for a fee. The broker claims they were the procuring cause of the sale and earned the fee on closing of a transaction. They presented the property to a buyer who remained interested in the property and eventually purchased it.
The seller claims the broker is not entitled to a fee since the buyer acquired the property through negotiations independently commenced by the seller after the representation expired.
Here, the broker is entitled to a fee as the procuring cause of the sale. The broker’s contact with the buyer set into motion an uninterrupted chain or series of events, separated only by time, which eventually resulted in a sale. [E.A. Strout Western Realty Agency, Inc. v. Lewis (1967) 255 CA2d 254]
But observe, had the representation agreement included a safety clause and the broker registered prospective buyers to perfect their right to collect a fee, a dispute over procuring cause activity is avoided entirely.
As a matter of risk mitigation, a properly structured exclusive representation agreement includes a safety clause as the best practice – always.
Editor’s note – In the next episode, we’ll cover a broker’s exercise of the safety clause when the price paid for a property is different from the seller’s asking price under the expired representation agreement.
