Cook v. Harvey Kalles Real Estate Ltd. 2019

OVERVIEW:

Cook – a former Real Estate Agent with Harvey Kalles (HK) brings a motion for summary judgement for $187,500 + HST for commissions earned + the Brokerage “fees”.

Plaintiff’s motion for summary judgment – Granted.

SUMMARY:

In May, 2017, Godfrey (a former Real Estate Agent – lapsed license) contacted Mr. Kalles to see a property listed by HK.

The listing agent Cook and Godfrey met and discussed the possibility of Godfrey starting a referral business and referring clients to Cook for a fee.

Cook spoke to Kalles and advised that she agreed to pay a referral fee to Godfrey (a non-registrant).

An offer for $15,000,000 was accepted. And a series of text messages were exchanged between the two.

Godfrey eventually sent a message advising that she “felt guilty” and would tell the clients that were referred about the referral arrangement.

Cook disclosed the referral arrangement to the Client -who were upset that they did not know about the arrangement, and expressed the view that HK ought to have disclosed it and indicated that they felt that the process had been “tainted” and that this may have affected the price.

Subsequently, the Clients cancelled the listing for the sale of their home with HK.

The property was relisted with only Ms. Cook as agent and Forest Hill Real Estate Inc. as the broker – Cook switched brokerages.

The Property closed on March 27, 2018. In June 2018, after this proceeding was commenced, HK paid Ms. Cook $187,467.00, representing 50% of the commission on the sale with the remainder being held in trust, in order to honour the agreement with Godfrey.

In his affidavit, Mr. Kalles states that HK’s intention was to hold the Balance in trust until Ms. Godfrey’s licence was reinstated, and that it does not intend to retain the amount for its own benefit.

Cook’s position is that there was no binding agreement between herself and Godfrey. Alternatively, Cook submits that if there was an agreement, it was between herself and Ms. Godfrey, and that HK was not a party to the agreement; and further any agreement between herself and Godfrey was contingent upon the reinstatement of Godfrey’s licence or the authorization of the arrangement by the Real Estate Council of Ontario (“RECO”). Since neither occurred, prior to the transaction closing, Cook argues that the agreement cannot be enforced because it is contrary to s. 9 of the Real Estate Brokers Act, 2002, c.30, Sched. C (“REBBA”), which prohibits payment of a commission to an unlicensed person.

HK’s position is that there was a “three-way” agreement among HK, Cook and Godfrey that Cook would receive 50% of the commissions and the remaining 50% of the commissions would be held by HK in trust for Godfrey until her licence was reinstated.

It was never agreed that HK would hold Godfrey’s share until she was licensed. And Godfrey’s evidence is that she understood that as long as she was unlicensed, she would be paid from Cook’s commission. It was only if Godfrey’s licence was reinstated that HK would pay her 50% of the commission directly.

Further, it was not possible for HK to agree to hold the Balance in trust for Godfrey until her licence was reinstated, because such an arrangement would be contrary to s. 30 of REBBA.

In order to receive a commission, Ms. Godfrey had to be licensed when the sale took place.

Can The Agreement Be Enforced?

HK is not a party to the agreement, and is not entitled to seek enforcement of its terms. Godfrey could enforce the agreement, however she likely has not because s. 9 of REBBA states that “[n]o action shall be brought for commission or other remuneration for services in connection with a trade in real estate unless at the time of rendering the services the person bringing the action was registered or exempt from registration under this Act and the court may stay any such action upon motion.”

Subsection 4(1) of REBBA prohibits a person from trading in real estate unless they are registered under the Act. In addition, s. 30 states:

30 No brokerage shall,

(a) employ another brokerage’s broker or salesperson to trade in real estate or permit such broker or salesperson to act on the brokerage’s behalf;

(b) employ an unregistered person to perform a function for which registration is required; or

(c) pay any commission or other remuneration to a person referred to in clause (a) or (b).

The statute makes it is clear that HK cannot pay Godfrey a commission and that it is not possible to circumvent the terms of the Act by calling the commission a referral fee.

HK argues that Cook should not be able to profit from her own wrongdoing and that she is not entitled to the Balance because the referral arrangement with Godfrey was an illegal contract. However, REBBA specifically precludes any portion of the Balance being paid to Godfrey. Section 30 of the Act precludes the type of arrangment that Cook entered into with Godfrey.

Conclusion

The Plaintiff’s motion for summary judgment is granted.

Cook is entitled to $193,908.00 plus pre and post-judgment interest.

SEE CASE: https://www.canlii.org/en/on/onsc/doc/2019/2019onsc2108/2019onsc2108.html?searchUrlHash=AAAAAQALcmVhbCBlc3RhdGUAAAAAAQ