Sep 16, 2015

If I were now a Quebec broker… Implications of Societe en commandite Place Mullins v Services immobiliers Diane Bisson Inc.

Société en commandite Place Mullins v. Services immobiliers Diane Bisson inc., 2015 SCC 36 (CanLII)

It is not every Supreme Court of Canada (“SCC”) case that deals with situations which thousands of Canadians encounter daily, and it is not every decision that has the potential to have immediate implications. Societe en commandite Place Mullins v Services immobiliers Diane Bisson Inc, [2015] SCC 36 [Place Mullins], however, is just such a decision.

Quebec brokers – take note. To start, bear with me as I recount the stirring events that led to this important decision.

The Facts

Place Mullins had to do with the (ultimately failed) sale of a commercial property in Quebec, priced at $3.4 million. The seller entered into a contract with a brokerage for the sale of this “immovable,” and the brokerage dutifully found an interested buyer, who signed the Agreement of Purchase and Sale. The trouble started when, in the course of due diligence, the buyer discovered environmental contamination in the soil of the property.

The buyer, well within his contractual rights, notified the seller about this, backed out of the original Agreement of Purchase and Sale, and offered an agreement with two new conditions: the seller would (1) clean up the environmental mess at its expense (at the estimated cost of $75,000 and possibly more) and (2) provide a certificate from the Minister of the Environment confirming environmental compliance.

The seller did not agree to the new conditions, efforts to come to another agreement failed, and the sale fell through. The brokerage, nonetheless, sued the seller to recover its commission based on their contract, which indicated that the commission was due “where an agreement to sell the immovable is concluded” or “where the seller voluntarily prevents the performance of this contract” (Place Mullins, para 6).

Unfortunately for the brokerage, the profit on their services in this case was zero (well, actually, it was negative if you count the cost of litigation). The Court held that the brokerage was not entitled to a commission, for two reasons.

First, the commission did not even become due because the agreement to sell the immovable was not actually concluded. The Court held that there is no such agreement until the promise to purchase becomes unconditionally binding and one party can sue the other to compel transfer of title.

Second, this case does not fall within the range of situations in which the seller could be liable for commission even on a failed transaction: the seller did not “voluntarily prevent free performance” of the contract. This finding was informed by several factors: the seller did not know about the contamination before the buyer discovered it, provided no warranties to the buyer or brokerage that the contamination was not there, and importantly, the seller “did not have an obligation either to decontaminate their property or to renegotiate the terms of the initial promise to purchase” (Place Mullins, para 21).

If I were now a Quebec broker…

Pondering the possibilities of life outside law school is one of my favourite pastimes, and this decision got me thinking about what I would be doing now if I were a Quebec broker. With the decision coming down only in July of this year, it remains to be seen how Place Mullins will be applied and interpreted, but if I were a Quebec broker…

First, I would start coming to terms with the fact that under a typical brokerage contract, I can only stake a claim to a piece of the delicious real estate transaction pie once the pie is fully baked – once there are no more conditions to fulfill, and only the transfer of title remains. I would mentally prepare myself for life on the hunt, for, truly, “as in hunting, the broker may spend much time and effort but fail to achieve his goal” (Place Mullins, para 1). As Place Mullins illustrates, any number of unfortunate events may intervene before the broker can capture the elusive Fox of Commission.

Second, I would start padding my brokerage contract with environmental and other warranties about the property, which I would ask the seller to give me. The fact that the seller in Place Mullins did not warrant the environmental condition of the property was an important finding: had it done so, it would likely be found that it knew, or ought to have known, about the contamination. If that were the case, the seller would have suddenly stopped looking so innocent in all this, and I suspect that a finding that it did, in fact, prevent the performance of the agreement would not be too far-fetched.

Third, I would become concerned about the following hypothetical.

The Case of the Bizarre Buyer

Imagine that instead of asking the seller to decontaminate the soil, the buyer instead asked only for an air freshener to cover up the stench of the mold. Provision of the air freshener would be a new condition to the agreement! Presumably, it would be treated the same way as the new conditions offered in Place Mullins, and under the brokerage contract, the seller would be found to have no duty to buy an air freshener, or to renegotiate on some other terms.

If I were a Quebec broker, I would make very sure that I loaded the seller with a contractual duty to make reasonable efforts to renegotiate a transaction in case due diligence reveals an issue. I would not want to risk losing my commission because the seller did not feel like making a trip to the store to pick up one of those little pine trees. This is an extreme situation, of course, but one can think of a wide range of outcomes where the seller does not even try to comply with a reasonable request.

Now what if I already signed a brokerage contract and find myself in the exact same situation as Diane Bisson Inc, except with a seller who does not even try to salvage the rapidly ailing sale? Well, I would get creative.

The common law recently imposed a conceivably broad duty of good faith in contractual performance (Bhasin v Hrynew,[2014] 3 SCR 495 [Bhasin]). Could it be that the Civil Code of Quebec, CQLR c C-1991 offers similar provisions, which could require the seller to make good faith efforts to renegotiate in order to perform its contract with the brokerage, or face liability for the commission? Or can we interpret the Court’s particular emphasis on the fact that the seller in Place Mullins did, in fact, attempt negotiations, as an indirect affirmation that the seller making a good faith renegotiation attempt is an important, if not required, factor for said seller to avoid commission liability? Could Bhasin have an impact? If I were a Quebec broker, I would hope so, on all these counts.

For Quebec Brokers’ Ontario Friends

One last thing I would do, if I were a Quebec broker, and I had friends in Ontario, is get my friends to also take a look at Place Mullins. Here is what I think they might notice.

First, when it comes to Ontario the decision seems not to, generally speaking, impact the question of when the commission becomes due. The typical Ontario Listing Agreement provides that commission is payable “for any valid offer.” This has been judicially interpreted to mean procurement of a buyer who is “able, ready and willing” to purchase the property (see, for example, Leading Investments Ltd v New Forest Investments Ltd, [1986] 1 SCR 70). In essence, this directs us to the same point in time as Place Mullins: the buyer becomes able, ready and willing to purchase when the promise to purchase becomes unconditionally binding, when financing is secured, all inspections complete and all conditions fulfilled.

The second part of the decision (related to the seller’s voluntarily prevention of contractual performance) is instructive, however. The same typical Ontario Listing Agreement indicates that the seller is liable to pay the commission if the sale falls through and the non-completion is “attributable to the seller’s default or neglect.” The substance of this phrase is very similar to the “voluntary prevention” clause – both indicate that the seller is liable for commission in case he does or fails to do something and thereby causes the transaction to fail. As a result, the same questions we considered in our Bizarre Buyer thought experiment remain top of mind.

… And this is what I would tell you if I were a Quebec broker. Then I would rush off, as there would be contracts in need of review.