Question about Termination clause in seller agency contract

[oohlalaw]

Hello.

Colorado law applies to this contract. The termination clause states: "Either party may terminate this agreement at any time for any reason by providing written notice to the other party. Early termination of the Right-To-Sell Contract will not terminate the Seller's commission obligation."

Scenario: If seller terminates the contract early, what commission obligation would there be if the house has not sold and does not sell before signing up with a new and different agency/agent after some weeks? More specifically, if the commission was to be 6% of the sale price of the home but the original agent did not find a buyer and seller terminates the contract, then later sells the home using a new agent/agency, would the seller still be required to pay the original agent 6%?

Thanks.

 

[quincy]

Hello.

Colorado law applies to this contract. The termination clause states: "Either party may terminate this agreement at any time for any reason by providing written notice to the other party. Early termination of the Right-To-Sell Contract will not terminate the Seller's commission obligation."

Scenario: If seller terminates the contract early, what commission obligation would there be if the house has not sold and does not sell before signing up with a new and different agency/agent after some weeks? More specifically, if the commission was to be 5% of the sale price of the home but the original agent did not find a buyer and seller terminates the contract, then later sells the home using a new agent/agency, would the seller still be required to pay the original agent 5%?

Thanks.

The commission obligation refers to a sale involving any buyer that the agent first introduced to the seller. This prevents a seller and buyer escaping paying a commission by waiting for the contract to expire and then entering into an agreement on their own, absent the agent costs.

 

[justalayman]

start with Googling procuring cause


then since we do not have the complete contract all anybody can do is guess as to what that single clause within the complete contract binds the seller to. I have seen sellers obligated to commissions for two different agencies. I have also seen contracts written such that if the seller engages a different agency and the sale is not to anybody the original agent can claim is "theirs" due to they being the procuring cause, the first agent is owed nothing.

 

[oohlalaw]

The commission obligation refers to a sale involving any buyer that the agent first introduced to the seller. This prevents a seller and buyer escaping paying a commission by waiting for the contract to expire and then entering into an agreement on their own, absent the agent costs.

This is the best case scenario I had assumed might be the case. An agent certainly should be paid his commission for a sale resulting from his efforts. Thanks.

 

[oohlalaw]

start with Googling procuring cause

then since we do not have the complete contract all anybody can do is guess as to what that single clause within the complete contract binds the seller to. I have seen sellers obligated to commissions for two different agencies. I have also seen contracts written such that if the seller engages a different agency and the sale is not to anybody the original agent can claim is "theirs" due to they being the procuring cause, the first agent is owed nothing.

Will search for procuring cause and when I have access to the contract again tomorrow, will check to see if there are any other referring/relevant clauses. The one I typed above seems fairly broad, so I appreciate the advice here.

Thank you.

 

[oohlalaw]

start with Googling procuring cause.

Done. It appears to confirm what Quincy described.

Revisiting the contract, in addition to what I posted yesterday (which was part of "28. Additional Provisions"), the other relevant section is:

19. Right of Parties to Cancel
19.1 Right of Seller to Cancel. In the event Broker defaults under this Seller Listing Contract, Seller has the right to cancel this Seller Listing Contract, including all rights of Brokerage firm to any compensation if the Seller Agency box is checked. [It is checked.] Examples of a Broker default include, but are not limited to (1) abandonment of Seller, (2) failure to fulfill all material obligations of Broker and (3) failure to fulfill all material Uniform Duties (§ 5) or, if the Seller Agency box at the top of page 1 is checked, the failure to fulfill all material Additional Duties Of Seller's Agent (§ 6). Any rights of Seller that accrued prior to cancellation will survive such cancellation.

The broker failed to place ads in a local newspaper as frequently as promised, but this isn't the main reason for wanting to cancel the contract. It's more a general feeling that the broker is not doing much except gathering Internet statistics. The seller was hoping the broker would be more proactive in marketing the house, especially since broker claims his agency does more than any other and charges a higher commission than others (6% rather than 5%).

Do you think seller can cancel the contract without being obliged to pay the commission if a future buyer had not viewed the home during the time of the (cancelled) contract?

 

[justalayman]

Done. It appears to confirm what Quincy described.

Revisiting the contract, in addition to what I posted yesterday (which was part of "28. Additional Provisions"), the other relevant section is:

19. Right of Parties to Cancel
19.1 Right of Seller to Cancel. In the event Broker defaults under this Seller Listing Contract, Seller has the right to cancel this Seller Listing Contract, including all rights of Brokerage firm to any compensation if the Seller Agency box is checked. [It is checked.] Examples of a Broker default include, but are not limited to (1) abandonment of Seller, (2) failure to fulfill all material obligations of Broker and (3) failure to fulfill all material Uniform Duties (§ 5) or, if the Seller Agency box at the top of page 1 is checked, the failure to fulfill all material Additional Duties Of Seller's Agent (§ 6). Any rights of Seller that accrued prior to cancellation will survive such cancellation.

The broker failed to place ads in a local newspaper as frequently as promised, but this isn't the main reason for wanting to cancel the contract. It's more a general feeling that the broker is not doing much except gathering Internet statistics. The seller was hoping the broker would be more proactive in marketing the house, especially since broker claims his agency does more than any other and charges a higher commission than others (6% rather than 5%).

Do you think seller can cancel the contract without being obliged to pay the commission if a future buyer had not viewed the home during the time of the (cancelled) contract?

again, not enough of the contract to be able to make that determination.


while in your first post you wrote it as the seller has an absolute right to terminate the contract, with this additional information, it is clear that right is present only in case of a breach of the contract by the broker. Whether his actions are construed as a breach or not is something you have not provided enough info to be able to determine. While you say they did not place ads as frequently as promised, unless you have a specific requirement within the contract and he failed to meet that schedule (and you also need to understand it would not likely be reviewed as a black or white matter; partial performance may allow for a denial of the termination) it is very arguable whether the broker met the requirements actually stated within the contract. (that's part of the info that is missing).


You have several possible scenarios here though that could come into play.

1. you successfully terminate the contract per the clause presented.

1a. the eventual purchaser is not claimable under a procuring cause basis; broker is owed nothing

1b. the eventual purchaser is claimable under a procuring cause basis; the broker has an arguable position that the clause does not remove his right to a commission as the purchase was ultimately determined prior to the cancellation of the contract and as such, they had already performed the ultimate task of the contract.

1c. the broker argues the eventual purchaser had been determined prior to your cancellation of the contract but was hidden from the broker. Thereby your actions are designed to intentionally frustrate the spirit of the contract and you owe the commission, regardless of any clause in the contract.

2. you attempt to terminate the contract; the broker disagrees with your basis and refuses to accept the termination

2a the property sells, you refuse to pay this broker anything; he sues you. Unless you have a valid basis for the termination, he wins. In addition, if you have engaged a second broker who did also perform under that contract, you owe both brokers (that is the situation I spoke of previously and I have seen it happen).

2b. property sells; not a procuring cause situation; broker sues; it is ruled you had a valid basis to terminate the contract; you owe the broker nothing.


I'm sure there are a few more scenarios but most of them will be variations of what I gave you.

to put it concisely:

The broker failed to place ads in a local newspaper as frequently as promised,

may not allow for a termination unless there is a specific frequency within the contract but even if there is, partial performance is likely to not allow for a termination but will depend on the specifics

but this isn't the main reason for wanting to cancel the contract. It's more a general feeling that the broker is not doing much except gathering Internet statistics

that and $7 gets you an overpriced cup of coffee at Starbuck's. That is NOT a valid basis to terminate a contract. Not even close.

 

[oohlalaw]

Thank you for presenting a series of possible scenarios. It is clear that things are not very clear in the contract. I will suggest to the sellers that they ask their broker for clarification of the termination clauses. This seems like the best way for them to find out the true intent of those parts of the contract.

Thanks very much.

 

[justalayman]

Thank you for presenting a series of possible scenarios. It is clear that things are not very clear in the contract. I will suggest to the sellers that they ask their broker for clarification of the termination clauses. This seems like the best way for them to find out the true intent of those parts of the contract.

Thanks very much.

it won't make any difference at this point. Only if there is a need to define the terms (like if the broker sues) will it make any difference. The contract is (apparently) in force and unless the broker willingly terminates it, it is always arguable in court whether there was a breach or not.

but really; do you think the broker is going to tell the seller they did breach the contract? Not too many brokers are going to bring their own knife to slit their own throat.



btw: just in case the seller is considering arguing they just want to take the property off the market.

what our brokerage would typically do in situation like that is withdraw the property from being marketed but leave the contract in place. That way the seller could not run off to another broker. If they really didn't want to sell, then our contract being in place was not an issue.