Copyright 2011, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Environmental and Real Estate, August 2011

A recent judgment of the Court of Quebec should give pause to real estate brokers working in the province. On June 14, 2011, in Les Immeubles Bruce Miller v. Thermitech Inspection, the Honourable Armando Aznar decided that, even though the client had accepted an offer to purchase for its property (later cancelled by agreement with the buyer), the broker was not entitled to claim its commission because the broker had failed to inform its client adequately about potential costs associated with decontaminating the site.

Facts

Thermitech Inspection Inc. (the Client) hired Les Immeubles Bruce Miller Inc. (the Broker) to find a buyer for its property. The Client received an offer of C$325,000 from a potential buyer (the Buyer), whom the Broker was also representing. The offer was drafted by the Broker and contained the following clause:

8.1 Purchaser buys building "as is" with no legal warranty, and will buy without mortgage condition as cash offer. Purchaser only condition is he will do environments test, and must have no contamination and if it does be contaminated vendor must clean. (sic)

On the advice of the Broker, the Client counter-offered. The counter offer was drafted by the Broker and reads as follows:

P2.3 1) Purchasher is aware building needs complete renovation, and buys the building at 4508-45122 coolbrook, montreal as is with no legal warranty. As well vendor can keep any money coming from his claim from the insurance due to fold. Only condition is purchasher will do a environmental test and if property is contaminated vendor must clean. As well in back of property there is no parking rights, for theres no right of passé.
2) Final price will be $330000, paid in cash with no mortgage condition, signing the deed of sale will occur 7 days after a clean environmental report. (sic)

The Buyer accepted the counter offer. A few days later, the Buyer's environmental consultant advised the Client that soil testing would be needed to check for impacts from a former heating oil tank. The Client then notified the Buyer and the Broker that it was not prepared to spend more than C$5,000 on decontamination. Soil testing revealed one area where hydrocarbons were present in concentrations exceeding residential land use criteria. The Buyer then wrote to the Client saying that she was withdrawing her offer, given the Client's refusal to honour the terms of the counter offer. The Broker advised the Client to sign a letter accepting the cancellation and agreeing to return the deposit to the Buyer. In the letter, which was drafted by the Broker and signed in his presence, no mention was made of the Broker's commission.

The Broker continued to have a mandate to sell the property. However, when it became clear that the Client was not prepared to assume decontamination costs, the Broker claimed C$26,074 as a commission from the Client, on the grounds that the brokerage agreement clearly stated that if a sale fell through because of the actions of the Client (in this case, its refusal to carry out decontamination work), then the Client would nevertheless have to pay the Broker's commission.

The Ruling

The court held that the cause of the cancellation of the sale was the Broker's failure to explain to the Client that the Client's financial liability under the counter offer was unlimited. In other words, the Broker drafted the counter offer and the Client did not understand that by undertaking to decontaminate the property, it was making an open-ended financial commitment. The court then cited provisions of the Quebec Civil Code on service contracts along with relevant provisions of the Rules of professional ethics of the Association des courtiers et agents immobiliers du Québec. It then reviewed existing case law and journal articles. The court concluded with a citation from the author Henri Richard who wrote that when a Broker fails to fulfill an obligation under the brokerage contract and that failure results in a cancellation of an offer to purchase, the consequence for the broker is loss of the commission.

Conclusion

Real estate brokers need to exercise a great deal of caution when dealing with soil and groundwater contamination issues. To avoid litigation, it is best to refer environmental questions to legal and engineering experts before making binding contractual commitments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.