Bob Aaron bob@aaron.ca

March 3, 2007

Real estate commissions must be paid

A decision of the Ontario Divisional Court late last year serves as a good reminder that it’s not a good idea to try to avoid an obligation to pay real estate commission, and it’s an even worse idea to try to get your lawyer to pay the commission for you.

In late 2003, Sohan Gidda listed his property for sale with a real estate agent, and retained a Brampton law firm to represent him in the transaction.

While the property was subject to the listing agreement, Gidda found a purchaser on his own and entered into a private agreement of purchase and sale.

The listing agreement expired Feb. 12, 2004 and the private sale transaction closed at the end of that month. According to Gidda’s listing agreement, commission was payable even if the property was sold privately during the listing period.

Gidda’s real estate agent heard of the private sale and called the lawyer’s office stating that she was the agent acting on the private transaction. She convinced the lawyer’s secretary to send her a copy of the private sale agreement.

The real estate agent then sued Gidda in Small Claims Court for $10,000, and was successful in obtaining a judgment against him for that amount. The judgment was filed in the office of the local sheriff and when the house was later sold, Gidda was forced to pay off the agent’s claim.

Blaming his $10,000 loss on the mistake of his lawyer’s secretary in releasing the document, Gidda then sued his lawyer to recover the damages. The trial took place before the sale of the house and before the judgment was paid.

The deputy small claims court judge ruled that the lawyer was negligent in disclosing the private agreement, but dismissed the case on the basis that Gidda had not suffered or proven any damages. His reasoning was that since Gidda had not yet paid the $10,000 to the agent at the time of the court hearing against his lawyer, he could not recover the money.

Gidda appealed the decision of the small claims court, and the case was heard by Justice John R. Sproat in October, 2006.

Justice Sproat ruled that in his opinion, Sohan Gidda had in fact suffered damages since the court judgment against him was a legal obligation, which eventually had to be paid.

Nevertheless, the judge dismissed the appeal and ruled that although Gidda had suffered damages, he failed to prove that the negligence of the lawyer actually caused the damage.

First, the judge wrote, it was agreed that the agent knew of the private sale prior to calling the law firm.

“I think it unlikely,” he ruled, “that a real estate agent who believed she was being cheated out of a $10,000 commission would simply let the matter rest. The fact of the sale would be a matter of public record, the real estate agent would probably have pursued the matter, the plaintiff could have been compelled to testify and would have been obliged to tell the truth.”

The judge also ruled that the direct cause of the “damages” was not the mistake of the lawyer’s secretary, but rather the fact that Gidda entered into the listing agreement and agreed to pay commission if the property was sold.

Justice Sproat wrote, “I have some difficulty in seeing how the plaintiff is damaged by being obliged to make a payment which he agreed to make under a contract that he entered into. It does not sit well with me that a person in the position of the plaintiff can enter an agreement, set out to deprive the other party of their entitlement under the agreement and then when he is caught, shift the loss to the law firm.”

Although the judge did not specifically refer to it, the ruling may well have been based on the doctrine of “clean hands.”

This common-law doctrine, going back hundreds of years, says that a person who has acted wrongly, either morally or legally in other words, someone with unclean hands will not be helped by a court when complaining about the actions of another party.

Gidda lost his first case when the agent sued him. He lost the second case when he sued his lawyer, and he lost the appeal of that decision. Justice Sproat awarded the lawyer $1,500 in costs against Sidda. The judge stated that his decision should not reflect adversely on the lawyer’s professional competence or reputation.

This case serves as a useful reminder that the standard Ontario Real Estate Association listing agreement obliges the seller to pay a commission for any valid offer to purchase the property obtained from any source during the listing period.

As well, there is usually a holdover period after the listing expires, which obliges the seller to pay commission on a sale to anyone introduced to the seller during the listing period. If you’ve committed yourself to pay commission to a real estate agent, pay it. The courts don’t look too kindly on an attempt to circumvent a binding agreement, or to shift the loss to a third party like your own lawyer.

The Gidda case is also a good lesson about suing a third party when you only have yourself to blame for the loss.

Bob Aaron is a Toronto real estate lawyer. He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.
Visit the Toronto Star column archives at https://www.aaron.ca/columns for articles on this and other topics or his main webpage at www.aaron.ca.