Properly managing the changes affecting the broker or agency bound by a brokerage contract

Sometimes a broker changes agency, decides to act on his own account or retires from the real estate or mortgage field, either by choice or because an agency closes its doors.

Who must notify the client when a broker changes practice?

As the brokerage contract is with the agency, it’s the latter that should notify the seller. Otherwise, the broker must do so. One notice is sufficient.

Although the brokerage contract (BC) is concluded with the agency, it’s with the broker that the client has established a relationship. That’s why, in case of change, the client must be informed of the situation to be able to take an informed decision, either to:

continue the relationship with the broker;
continue the relationship with the agency; or
terminate any contractual relationship if no option suits him.

If the broker ceases to act on his own account, he must also immediately notify in writing the parties he represents.

Here are the main cases that may be faced and the generally accepted practices to abide by.

A broker acting on behalf of an agency leaves for another agency

In this case, the agency (or, if not, the broker) will immediately notify in writing each client of the possible departure of the broker and will provide him with the three possible options:

Follow his broker to his new agency, in which case the BC will be deemed terminated with this agency and signed with the broker’s new agency under the same terms and conditions;
Remain with this agency, in which case the executive officer shall send immediately a notice to the contracting party regarding the identity of the new broker who will represent2 him;
Terminate the brokerage contract.

The client must reply to the agency no later than the day of agency change. Otherwise, the contract will be terminated.

If the notice is not sent to the client on the date of change of the agency, the contract will be terminated. If the client wishes to continue using the services of the agency, he must contact it.

These consequences are provided in the mandatory forms, including the Exclusive brokerage contract – Sale (BCS) and the Exclusive brokerage contract - Purchase (BCP). If the broker uses a contract “house” form, this must be checked to see what has been provided in this regard in case the client notice is not received in a timely fashion (for instance: no consequences, but an identity change of the broker representing the agency).

A broker acting on behalf of an agency ceases his activities

When the broker ceases his activities, the agency or broker must immediately notify in writing the clients by giving them the option to:

remain contractually bound to the agency which will appoint another broker to replace him; or
terminate the brokerage contract.

Failure to receive a notice of termination from clients, the broker’s brokerage contracts will continue with the agency, represented by the replacing broker.

If the agency does not send the notice to the client on time, the contract remains in force with the agency, but the latter still has a duty to send the notice to the client. The client has the right to terminate the contract.

When sending a notice concerning a broker who ceased his activities or passed away, it is a good practice to include a reasonable time period for a reply. In addition, indicating a time frame helps avoid ambiguities or disputes (if the client has not yet given his reply, or if he wants to exercise the option available to him should he fail to reply to the notice).

Before sending the notice, contact the client to offer him the options available and propose replacing brokers. You may inform him of the sending of the notice and the remaining steps.

A broker acting on his own account ceases his activities

The broker intending to cease his professional activities shall notify his clients immediately in writing. This brokerage contract concluded by a broker carrying out his activities for his own account shall be deemed terminated as of the date his licence is revoked.

If the notice is sent after the broker has left or ceased working on his own account, the original brokerage contract is considered terminated on the same day the broker ceased his activities.

Agency merger or acquisition

During an agency merger or acquisition, one of the two agency licences might be revoked. Sometimes, there will be merger of two agencies to create a third one, which will have its new licence number. So there will be a revocation of the two old licences.

A notice shall be sent to each client of the agency(ies) that were not maintained (revoked licences) stating that “unless otherwise specified by him [client], the contract will follow the broker to his new agency.” Failure to receive a notice to the contrary from the client, the contract continues with the new agency of the broker.
If the agency failed to send the notice to the client, the contract remains in force with the new agency, but the latter still has the obligation to send the notice to the client.
In case of doubt on the need to initiate procedures in case of agency change, contact the OACIQ Certification Department that will tell you whether the licence number of the broker’s agency must be changed (if so, then there is an agency change).

Summary table of change scenarios discussed

Scenarios	Client options	Consequences
Broker leaves agency A for Agency B or to act on his own account and agency A remains open.	Follow the broker to agency B or follow the broker acting on his own account; Remain with agency A; Terminate the brokerage contract. The client’s reply must be received by the agency no later than the day of change.	Failure to receive the client’s reply no later than the date of agency change will result in the termination of the contract.
Broker leaves agency A for agency B or to act on his own account because agency A closes its doors.	The contract will follow the broker to agency B or follow the broker acting on his own account, unless otherwise stated by the client;
Broker ceases his activities. Agency A remains open.	Remain with the agency A; Terminate the brokerage contract.	Failure to receive the client’s termination notice, the contract continues with the agency that must tell him about the name of another broker appointed to replace him. If the broker passed away suddenly or if he fails to notify his client of his licence revocation, the BC continues to exist even after the licence revocation and the agency must send the notice indicating the options available.
Broker ceases to act on his own account in order to act for agency A.	Follow the broker to agency A; Terminate the brokerage contract. The client’s reply must be received by the broker no later than the day of change.	Failure to receive the client’s reply no later than the date of change will result in the termination of the contract.

AGENCY EXECUTIVE OFFICER’S ROLES AND PRACTICES

Take the initiative to send the notice in a timely fashion, because the brokerage contract belongs to the agency.
Clearly identify the situation in order to send the right notice to the client with the appropriate choices.
Implement a procedure for the sending of notices, inform brokers about it and follow it as soon as a broker announces that he is leaving.
If the client leaves the agency to follow his broker (on his own account or in his new agency), send him, upon request, his record and keep a copy for agency records.

Can the broker be penalized for the loss of a client in case of agency change?

A clause similar to a non-compete clause may be provided in a broker’s employment contract with his agency, but it should be under “reasonable terms” to prevent it from being perceived as limiting the client’s choice to follow his broker who decided to act on behalf of a new agency or on his own account. Such a clause shall comply with all laws such as the Competition Act, for instance.

A clause in the employment contract may provide for an amount of money to be paid by the broker if he leaves the agency and takes with him brokerage contracts. However, an onerous clause to the point where the leaving broker would not like his clients to follow him to the new agency, would limit the rights and choices of clients and would therefore be unreasonable.

Standard Notices - Change of agency

The OACIQ designed standard notices adapted to different possible scenarios with a section for the contracting party’s reply. These notices are in the “Notice - Agency or status change” article.

If your agency changes its name without creating a new licence number, a simple courtesy letter informing the client of the name change would be sufficient.

Intervention of the spouse

When a broker notifies his client that he is changing agency or that he will henceforth be carrying out his activities on his own account, or when an agency ceases its operations, is the intervention of the spouse required for the brokerage contract to be transferred to the new agency or to the broker who is now carrying on his activities on his own account?

Should a change be affecting the agency or broker, it is recommended to obtain all the signatures under the client’s reply including that of the spouse as long as his intervention was required for the purpose of the brokerage contract. Postponing the spousal consent in time may cause significant damage to the seller, should he fail to obtain this consent at the time of sale of the property.

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