What this episode adds to the discussion: The second episode of our new series presents a separate safety clause scenario contrasted against the procuring cause theory used to limit an earned fee to a completed transaction.

The prior episode depicts how a safety clause in an exclusive seller representation agreement establishes the right to a fee after the retainer period ends.

A fee earned, demanded and the procuring cause defense

Consider a seller broker and their agent who are employed under a representation agreement containing a safety clause.

The broker and agent exercise due diligence and show the property to numerous interested buyers, though do not locate a buyer who agrees to acquire the property during the period of representation.

At the end of the retainer period, the broker registers the identity of the prospective buyers with the seller and closes the client’s file. [See RPI Form 123-1]

Several months after the seller representation agreement expired, the seller broker discovers the seller-client negotiated and sold the property to a buyer the broker registered under the safety clause. The broker makes a written demand on the seller for their fee earned under the safety clause in the now-expired representation agreement, which the seller rejects.

The seller claims the broker has no right to a fee since the broker was not the procuring cause of the sale, which requires the broker to obtain the buyer’s signature and submit the offer to the seller.

The broker claims a procuring cause defense does not apply to a fee earned under a safety clause since the broker located a prospective buyer and provided the buyer with property information.

Is the broker entitled to a fee from the seller?

Yes! The broker earned a fee under the safety clause in the representation agreement fee provision.

After the representation expired, the registered buyer acquired the property because of negotiations commenced during the safety period, either directly with the seller or through another broker.

Contrary to the claims of the seller, the broker need not be the procuring cause of a sale to earn a fee under the safety clause (nor during the representation retainer period). [Leonard v. Fallas (1959) 51 C2d 649]

The degree of involvement

The degree of involvement a seller broker or their agents need to qualify a buyer as a prospective buyer is set by the terms of the safety clause.

A person whose only relationship with the broker is observing a “For Sale” sign or an online advertisement is not a prospective buyer. [Simank Realty, Inc. v. DeMarco (1970) 6 CA3d 610]

To qualify as a prospective buyer, the buyer needs to commence negotiations which involve the seller broker or agent.

Negotiations with a buyer begin the moment the buyer seeks additional information on the property beyond what is publicly available from the broker, directly or indirectly. To this end, to best protect their fee, the seller broker or agent delivers a marketing package to the buyer disclosing detailed property information as soon as practicable – ASAP.

Procuring cause theory

The procuring cause theory today is used primarily in an open seller representation environment to determine whether a fee is earned. It does not apply under an exclusive seller representation agreement which contains a safety clause – and does not limit the fee solely to the broker completing a transaction.

Thus, the procuring cause is not to be conflated with the prior discussion about a fee earned under a safety clause.

A seller broker’s activities during employment under an open representation qualify as the procuring cause of a buyer and entitle the broker to a fee when the broker or their agent are either:

  • the direct cause of a sale to a buyer; or
  • the cause of a continuing series of events which result in a sale to the buyer.

Editor’s note – In the next episode, we’ll apply the procuring cause theory to an exclusive seller representation agreement which lacks a safety clause.