What is a Holdover Period? Are You Required to Pay Real Estate Agent Commissions After the Listing Agreement Expires?

It’s not uncommon for a listing agreement between a real estate agent and a seller to include a “holdover period” clause. This clause states that the seller may still be liable to pay the agent’s commission if the property sells within a specified number of days after the listing agreement has expired, as long as the buyer was introduced to or saw the property during the listing period. This protects agents who have invested time and effort, ensuring they are compensated if a buyer makes an offer soon after the agreement expires.

A recent Ontario Court of Justice decision reinforced the enforceability of the holdover period clause after a seller attempted to avoid paying the agent’s commission.

Sutton Group v. Kim (2014 ONSC 891)

In Sutton Group v. Kim, the Court heard arguments regarding whether the seller was obligated to pay a real estate commission when the property sold two days after the listing agreement expired. The agreement included a 90-day holdover period. Since the property sold within this timeframe, the brokerage pursued the agent’s commission.

The seller contacted the agent after the sale, offering $2,000 for her time but claimed the full commission was no longer payable because he had sold the property himself. The seller argued several points, including that he wasn’t liable under the listing agreement because:

1. He wasn’t informed of the holdover period.

2. The buyer wasn’t introduced to the property during the listing period, nor had the buyer been shown the property during that time.

Court’s Findings:

1. Lack of Awareness of the Holdover Period:
   The seller claimed he wasn’t informed about the holdover period by his agent. While the Court agreed that the agent had not properly explained the clause, it ruled that this did not exempt the seller from liability. The Court emphasized that it is a well-established principle that a party cannot escape liability simply by failing to read a document they’ve signed.

2. Introduction and Showing of the Property:
   The seller argued that the buyer had been introduced to the property before the listing period began and had not been shown the property during the listing period. The Court partially agreed, finding that the buyer had first seen the property the previous year when a “For Sale” sign was placed near the home, and a tenant showed them around. Since this occurred before the listing period, the Court agreed that the buyer was not introduced during the listing period.

   However, the Court also found that the second part of the holdover clause was satisfied because the buyer had indeed been shown the property during the listing period. This triggered the holdover clause, and the Court ruled that the full 5% commission was payable to the agent.

Key Takeaways for Sellers:

If you’re planning to sell a property and sign a listing agreement, pay close attention to the holdover period clause. This provision can be adjusted based on what you feel is reasonable for compensating an agent. Whether the clause stipulates 7, 30, or 90 days, understand that you may still be liable for commissions if you sell the property to a buyer who saw the property during the listing period.

Before signing any offers, especially during the holdover period, it’s advisable to seek legal advice to ensure you understand your potential liability for commissions to your previous real estate agent.

This blog provides general information and is not intended to replace legal advice from a qualified professional. The examples and situations described are illustrative and not intended to address specific issues. The use of this information does not create a lawyer-client relationship. For legal advice on your specific situation, consult a lawyer before making decisions related to the issues discussed in this blog.