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July 26, 2011

H is for Holdover

by mark mclean

The Real Estate Council of Ontario  handles a great many calls on the topic of the holdover clause.  Primarily, the purpose of this clause is to offer some protection to a sales representative who has shown a property that subsequently becomes unavailable or “off the market” whether through expiry or termination. There is no standard time limit but typically holdover periods are 90 to 120 days.

With any contract to sell a property, the listing broker’s authority ends when either the property sells or when the contract expires. So lets say that Mr. Joe Public walks into a house listed by Broker A. He likes the house and strikes up a good conversation with the listing agent. Joe is rather sneaky so he leaves the open house and returns later in the evening to speak to the owners directly and convinces the seller to terminate the listing and sell it to him privately. The contract has a 90 day holdover clause. In this case, if a deal was consummated, the sellers would owe the full commission to Broker A.  The only way to avoid paying commission would be for the sellers to terminate the contract and wait the full 90 days before selling it to him privately.

Now, lets complicate the issue a little. Joe Public is under a BRA with Broker B who shows him the property while it is listed with Broker A. Joe is interested in the property but hasn’t received his inheritance yet so is unable to make an offer. The listing eventually expires just a few days before Joe receives his inheritance. He calls his agent and tells him to contact the seller and bring him an offer. Broker B calls the seller, signs a one week exclusive listing and then brings them an offer which is accepted. The net result is that there is no recourse by Broker A to seek any commission even though the sale takes place within the holdover period however Broker B maybe liable under RECO for breaking a rule, namely contacting the seller directly. As you know, the Privacy Commissioner made changes to the APS several years ago that provided a box to be checked off by the seller that disallowed agents to contact them should a listing expire.

Here is a little understood fact about Broker B’s new listing and the seller’s obligations to pay commissions. Lets say that when Broker B met with the sellers in the example above, and told them that he would take the listing at 1% less than Broker A. Did you know that if the sellers accept Joe Public’s offer, through Broker B, the seller would be required to pay that 1% to Broker A? The reality is that  it is unlikely that Broker A would ever actually find out what the commission paid to Broker B was. I would just remind you that the realtor community is very small and this type of news can get around quickly.

As agents it is imperative that, whether we are signing a client to a Buyer Representation Agreement or a Listing Agreement, we explain the holdover clause clearly. It may be worth having your client initial beside the clause. In a court of law it would clearly indicate to a judge that you explained the concept and legal obligations of the holdover clause.


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