Cancellation of the contract

Excerpt from "The drafting of contracts and documents related to real estate" manual

by Manon Bonnier, lawyer and Claude Barsalou, lawyer

The real estate broker or agent brings the vendor together with potential buyers so that they can conclude a sales agreement. As an intermediary, the broker or agent is responsible for, among other things, the marketing of the immovable, which means that he publicizes the fact that it is on sale and, in general, advises the seller during the negotiations with any potential buyer.

4.2.2.4 Expiry date

The expiry date must be indicated in the space provided. If no expiry date is indicated when the contract is signed, it expires automatically 30 days after being concluded (Section 36 of the REBA). The obligation to provide for a specific date and time of expiry exists for all written brokerage contracts, even those which do not cover a chiefly residential immovable having less than five dwellings (Section 76 of the By-law of the Association des courtiers et agents immobiliers du Québec). However, Section 36 providing for automatic expiry within 30 days only applies to contracts relating to immovables covered by Section 32 of the REBA, that is, mandatory brokerage contracts. Finally, it should be noted that it is prohibited to include in a mandatory brokerage contract a clause that has the effect of automatically renewing it (Section 37 of the REBA).

4.2.2.5 Cancellation of the contract

In principle, a contract should not terminate before the expiry date provided therein. However, the Civil Code states that, in the case of a contract for services, the client can unilaterally cancel it (Article 2125 of the Civil Code). A mandatory brokerage contract is thus, in principle, revocable at any time by the client. Note, in passing, that it is possible for the broker to cancel the brokerage contract under certain conditions (Article 2126 of the Civil Code). However, as we have seen, the REBA provides for the possibility of making a brokerage contract irrevocable:

35. The contract must set out (5) if such is the case, its irrevocability;

How can you make a brokerage contract irrevocable, with the seller’s agreement, of course? By simply adding a clause to this effect in section 11.1 (Other declarations and conditions) – before the contract is signed, needless to say. Such a clause could read as follows: ''This contract is irrevocable''.

4.2.2.6 Right of retraction in three days

It is very important to realize that, even when a brokerage contract contains such an irrevocability clause, the REBA gives the seller the right to terminate the contract within three days of receiving a duplicate of the contract:

40. Notwithstanding any stipulation to the contrary, the natural person may, at his own discretion, cancel the contract within the three days which follow the day on which he receives a duplicate of the contract signed by both parties, unless a waiver is written in its entirety by the person and signed. The contract is cancelled by operation of law from the sending or giving of a written notice to the broker.

You will also note that the text of Section 40 is reproduced directly above the ''Signatures'' section of the contract, as required by the REBA (Section 27 of the Regulation respecting the application of the Real Estate Brokerage Act). Furthermore, Section 41 of the REBA considerably limits the broker’s right to claim compensation in such a case:

41. The broker may claim no compensation following the cancellation of a contract in accordance with section 40, unless a sale, leasing or exchange which meets the conditions specified in section 38 occurs.

Thus, in principle, the broker cannot claim any compensation. Section 38 of the REBA concerns the broker’s right to claim compensation when a sale takes place within 180 days of the expiry of the brokerage contract. We will examine those provisions when we study section 7 (Real estate broker’s compensation).

Example

Let us illustrate how Section 40 applies using the following example: On September 1, an agent representing a broker signs a brokerage contract with the owner of a house; he gets the owner to agree that the brokerage contract shall be irrevocable and includes a clause to that effect in the contract. On September 4, the seller sends a notice terminating the contract, but the notice is only received by the broker on September 6. Is the contract revoked? Insofar as the seller has not waived his right of retraction as provided for in Section 40, the answer is yes. In fact, the contract ends effective at the time the notice is received by the broker or the time it is sent. Since the notice was sent within three days, the contract is terminated. Moreover, if the last day is a non-business day, the period is extended (prolonged) to the next business day.(4)

Waiver of the right of retraction by the seller

With regard to the method by which the seller waives the right of retraction when the contract is signed, he must write this waiver himself and sign it. Consequently, a waiver would not be valid, even if it was signed by the seller, if it had been written by the agent. The waiver might read as follows: ''The seller waives the right of retraction within three days provided for in Section 40 of the Real Estate Brokerage Act''. If there is more than one owner, each one must waive the right of retraction in the same way. Whether a contract is irrevocable or not is worthy of further comment illustrating certain situations in which brokers and agents may well find themselves in carrying out a brokerage contract.

4.2.2.7 The case of a seller who no longer wants to sell

One of the most frequent situations is certainly the case where a seller no longer wishes to sell his immovable. If the contract is revocable or, in the case of an irrevocable contract, if the three-day period for exercising the right of retraction has not expired, the seller can forward a notice to the broker stipulating that he is terminating the contract. However, in such a case, it would be preferable for the seller to agree in advance on the costs and expenses he will reimburse to the broker and any other amount he may have to pay to compensate the broker for the injury, if any, he has suffered due to the cancellation. In fact, even though the Civil Code gives the client the right to unilaterally terminate a contract for services, it also recognizes that the client then has certain obligations towards the provider of services, in this case the broker:

2129. Upon resiliation of the contract, the client is bound to pay to the contractor or the provider of services, in proportion to the agreed price, the actual costs and expenses, the value of the work performed before the end of the contract or before the notice of resiliation and, as the case may be, the value of the property furnished, where it can be returned to him and used by him. For his part, the contractor or the provider of services is bound to repay any advances he has received in excess of what he has earned. In either case, each party is liable for any other injury that the other party may have suffered.

In this case too, the broker may be entitled to compensation if the immovable is sold within 180 days of the end of the contract to a person who became interested during the term of the contract (see the explanations on section 7 – Real estate broker’s compensation – below).

4.2.2.8 "Taking off the market"

Another possibility, and the broker has the choice whether or not to agree to this procedure, is taking the immovable ''off the market''. What does it mean to take something off the market? It refers to an agreement between the broker and the seller whereby the broker’s obligations are ''suspended'', usually for the remaining term of the contract. However, the contract remains in force until its expiry date, which means that the seller cannot offer his immovable for sale himself or through another person, assuming that it is an exclusive contract. This was emphasized by the Court of Québec in a judgment handed down in 1994:

The agreement to take the immovable off the market does not terminate contract P-1. In graciously accepting this agreement, Re/Max agreed not to sell the immovable; but the other conditions of the contract remain in force .(5)

Taking an immovable off the market, like any other amendment to a brokerage contract, must be evidenced in writing using the appropriate form, ''Amendments and Notice of Fulfilment of Conditions''. Once again, we remind you that a broker may agree to take an immovable off the market but he is not obligated to do so.

4.2.2.9 The case of a seller who wants to terminate the contract

Another situation that frequently arises is when the seller wishes to terminate the contract, for example, because the broker’s agent has left to go and work for another broker. This possibility is covered by specific provisions in the exclusive brokerage contract, in subsection (16) of section 10 (Obligations of the broker); we will study it later. If the client wishes to terminate a revocable contract, he has only to send written notice thereof to the broker. However, as we have seen, it is preferable for the client to agree with the broker in advance concerning the payment of the broker’s costs and expenses and, if necessary, an amount in compensation of the injury, if any, suffered by the broker as a result of this cancellation. In the case of an irrevocable contract, neither the client nor the broker can terminate the contract before the expiry date without an agreement to that effect with the other party. But what happens if the client still sends a notice terminating the contract, assuming the three-day right of retraction under Section 40 of the REBA has expired? In principle, this notice has no legal effect; consequently, the brokerage contract remains in force and will continue to be so until the expiry date agreed to by the broker and the seller at the time it was signed.

4.2.3 Description of the immovable

3. SUMMARY DESCRIPTION OF IMMOVABLE 3.1 ADDRESS: _________________________________________________________; (number, street, locality) 3.2 The immovable, with constructions erected thereon and appurtenances, is designated as follows: Cadastral designation: _____________________________________________________________; (number of lot, part of lot, subdivision) (name of official cadastre) measuring _________________________________________, for an area of ________________________________________________. Hereinafter called: the ''immovable''. If the immovable is held in co-ownership, complete the following: The immovable is held in: ____ divided co-ownership ____ undivided co-ownership for a share equal to ______%. The immovable held in co-ownership has ______ parking space(s) (nos _______________________) and ______ storage space(s) (nos _______________________). This section describes the immovable which is the subject of the brokerage contract. It is extremely important to make sure that the immovable is described precisely to avoid any doubt or confusion as to which immovable is offered for sale. The real estate broker or agent must therefore make sure that the information is correct. To this end, he must carefully consult the vendor’s act of acquisition, which contains the immovable’s exact designation, the location certificate prepared by a land surveyor and, in the case of divided co-ownership, the declaration of co-ownership.

4.2.3.1 Address

If you are using the form for the sale of a property without any buildings (vacant), it is a good idea to specify this or to strike out the words ''with constructions erected thereon and appurtenances'' in section 3.2.