The BCS and the buy-back by the co-owning spouse

Mrs. Tremblay and Mr. Rashid are in the process of separating and decide to sell their ranch-style house, which they bought together three years ago. They sign an Exclusive brokerage contract – Sale (BCS) with Mr. Gagné, real estate broker. Two months later, Mrs. Tremblay wishes to buy back her spouse’s share.

Several questions arise:

• Can the broker claim remuneration under the brokerage contract?
• Will this remuneration be calculated on the full price of the property or on the spouse’s share only?
• How should the promise to purchase be drafted when buying back the spouse’s share of an undivided co-ownership property?

Mr. Gagné discusses this with his agency executive officer. Since this is a rather unusual situation, the agency executive officer decides to talk to an information agent from the OACIQ Info Centre to get clarification.

Obligations under the brokerage contract and remuneration

First, the information agent from the OACIQ Info Centre will ask if, when the brokerage contract was signed, the sellers discussed their situation with the broker and the possibility that one might buy back the other’s share.

The information agent will remind the AEO that when taking up a brokerage contract, the broker plays a crucial role in establishing a climate of trust. He must explain the clauses of the Brokerage contract – Sale forms that he is having the clients sign, including clause 8.7 (Exclusive brokerage contract – Sale) or clause 8.8 (Non-exclusive brokerage contract – Sale), which provides the opportunity to clarify the situation between the parties (separation context), and thus to broach the possibility of one of the spouses buying back the other’s share.

The broker must also inform his clients that his role is to protect their interests and protect the confidentiality of their personal information, in accordance with his ethical rules. The broker must promote transparency in order to protect the interests of the sellers.

If the intention to buy back the spouse’s share had been discussed when the brokerage contract was signed

If, when the brokerage contract was signed, the sellers had discussed with their broker the fact that they were separating, and if the broker had asked, as was his duty, about the possibility of one spouse buying back the other’s share, the broker could have come to an understanding with them concerning the sale of the property. He could have agreed to reduce his remuneration if this situation occurred.

Such an agreement would have been included in the brokerage contract. The seller’s broker would then have disclosed to all other brokers without delay, via the detailed description sheet, the fact that the spouse could buy back the undivided shares of the other. The seller’s broker would also have notified without delay any buyer’s broker collaborating in the transaction that a promise to purchase was received from the spouse.

One of the spouses could also have been excluded from the brokerage contract, by inserting the following standard clause:

“This brokerage contract does not apply regarding any promise to purchase presented on the IMMOVABLE by the person(s) hereinafter designated and accepted by the SELLER within _____ days following the signing of  the  brokerage  contract: _____.

The SELLER undertakes to keep the AGENCY or the BROKER informed without delay, in writing, if such a promise to purchase is received.

As soon as all the conditions of this accepted promise to purchase have been fulfilled, with the exception of the signing of the deed of sale, the SELLER shall notify the AGENCY or the BROKER without delay, in writing. This contract shall be terminated by operation of law as of the receipt by the AGENCY or the BROKER of such written notice, and no remuneration referred to in clause 7.1 of the brokerage contract will be due to the AGENCY or the BROKER by the SELLER.”

Since the intention to buy back surfaces once the brokerage contract is already in progress

If the issue of the buy-back was not discussed when the brokerage contract was signed but is brought up during the performance of the contract, as in this case, an agreement could still be made between the broker and the sellers regarding a reduction in remuneration. In this case, the agreement would have to be entered on a mandatory Amendments form.

The information agent reminds the AEO that the sellers have the following obligation under the exclusive brokerage contract they have signed:

8.7 The seller shall keep the agency or the broker informed of any change in his financial situation or any situation that could compromise the performance of this contract, including concerning his marital status. (Clause 8.8 in the Non-exclusive brokerage contract – Sale form)

In case of disagreement between the parties concerning remuneration, based on the facts of the case a court could conclude that the broker is entitled to his full remuneration, since the object of the brokerage contract was fulfilled (clause 2.1 of the brokerage contract to sell), that the sellers did not comply with their contract obligations and that they, consequently, compromised the performance of the brokerage contract.

A court could also conclude otherwise if the broker had not provided all the necessary information to the sellers. In short, to avoid any dispute, the broker should encourage his clients to discuss this as soon as possible, at the signing of the contract. There is an old adage that says that the worst agreement is still better than the best of trials.

Drafting of the promise to purchase

If the parties agree and the situation is not a problem, the broker could record the agreement in writing in a promise to purchase form (PP or PPU), adapting as necessary based on the specifics of the buy-back of the spouse’s undivided shares. In this context, the broker should then take the property off the market and explain to the couple that he is now representing both parties to the transaction, making sure that both are comfortable with this situation. If not, the broker should terminate the contract and explain to his clients the reasons why he can no longer represent them, and agree on some sort of compensation to avoid any controversy regarding the right to remuneration. In all cases, the broker can decide to refer his clients to a legal advisor.

The agency executive officer thanks the OACIQ Info Centre information agent for the relevance of the information provided, which will be useful not only to Mr. Gagné, but also to any other broker in his agency faced with this special situation.