In a recent Ontario decision, buyers in a real estate deal were ordered to pay a real estate agent commission for the purchase of a property based on unjust enrichment, despite the fact that the parties had never signed a Buyers Representation Agreement (“BRA”).
In the real estate business, relationships between purchasers and real estate agents are almost always governed by a BRA. A BRA contains a series of standard form terms, including a term that the purchasers will not use the services of any other real estate agent in the time that the BRA is in effect. The time period that a BRA is in effect can be negotiated by the parties.
Couples Look For New Home
The appellants in the case were two brothers and their wives.
The respondents were a real estate brokerage firm and one of its employees, a real estate agent.
In 2015, the appellants were looking for a house with some acreage that would allow both families to live in the same house. As a result, there were some unique features to the property that they were looking for, such as two kitchens.
One of the brothers met the real estate agent and, after discussion, the real estate agent began researching properties that would meet the unique needs of the appellants. He was able to find several properties for the appellants to consider, including one called the Gore Road property.
The parties did not sign a BRA or any other type of agreement. While a BRA was prepared, it was never signed.
Parties Part Ways
Over several months in 2014, the appellants made a series of offers on the Gore Road property through the real estate agent, but none were accepted. Following the failed offers, the appellants told the real estate agent that they were going to stop pursuing the purchase of a new home or selling their current home until the following spring.
However, the Gore Road property came back on the market in early 2015. In February of 2015, one of the husbands signed a BRA with the listing agent for that property and made an offer to purchase the property, which was accepted.Thus, title to the property was taken in the name of all four appellants and commission was paid to the sellers’ real estate agent.
Real Estate Agent Sues Appellants for Unjust Enrichment
Later that year, the real estate agent discovered that the home owned by one of the brothers had been sold and that the appellants had purchased the Gore Road property. As a result, the respondents pursued an action against the appellants.
At trial, the Deputy Judge rejected the evidence of the purchasers that they had ended the relationship with the real estate agent because they were unhappy with him.
Instead, the Deputy Judge inferred that the buyers had paid less than full commission to the sellers’ agent and that the reason the appellants went directly to the sellers’ agent was to cut out the real estate agent from the transaction and save on his commission.
Based on that finding, the Deputy Judge determined that the appellants had been unjustly enriched. She concluded that the amount of the unjust enrichment should be calculated based on the usual commission that the real estate agent would have received had the transaction been completed. The commission was fixed at $24,478, which was 2.5% of the price of the home plus HST.
The appellants appealed the decision.
Court Rules Upholds Finding of Unjust Enrichment
On appeal, the court began by setting out thetest for determining the existence of an unjust enrichment, which requires:
a) An enrichment of the defendant;
b) A corresponding deprivation of the plaintiff;
c) An absence of a juristic reason for the enrichment.
After reviewing the facts of the case, the court concluded:
“It was open to the Deputy Judge to conclude, from the evidence that she had, that the Appellants were able to purchase the Gore Road property for a lower price because the commissions would not be payable to the Respondents. The ability to purchase the property for a lower price is an enrichment. […]
Having determined that the Appellants were enriched by being able to purchase the house at a lower price because they did not have to pay the Respondents’ commissions, it follows that the Respondents suffered a corresponding deprivation of the commissions that they did not receive.”
In the result, the court therefore dismissed the appeal.
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