Instructions to the notary regarding remuneration: a specific clause on this subject

Is it possible to have the remuneration agreed to on my brokerage contract to purchase paid by the notary directly from the proceeds of the sale?

My buying client would like his mortgage to include the remuneration due to me under my brokerage contract to purchase. Is this possible?

Yes, it is possible to do so. The forms contain a specific clause on the subject. In both the situations mentioned above, you must use the clause R2.5 included in the mandatory form Annex R – Residential immovable.

Moreover, the CMHC has informed us of the following:

“In accordance with our policy, the CMHC will consider a selling price that includes a real estate broker’s commission (for seller’s broker and/or buyer’s broker), as long as the amount of this commission is included in the purchase and sales contracts and the total purchase price, including commission(s), does not exceed the market value of the property. Whether or not it includes a commission for the seller’s or the buyer’s broker, the purchase price specified in the purchase and sales contract is the purchase price that the approved lender must submit to the CMHC for analysis. A broker’s commission that is negotiated outside the purchase and sales contracts is not eligible for a financing insured by the CMHC.”

It should be noted that under what is referred to in clause R2.5, the sums will be paid to you “[...] from the available sums payable to the SELLER after payment of any prior or hypothecary claims and any disbursements or fees incurred by the notary to cancel these debts”. It is therefore important to make sure that the seller has sufficient equity in the immovable to cover your remuneration in full.

Furthermore, the use of the clause R2.5 will be made easy if the amount of the remuneration set out in the Brokerage contract to purchase is a lump sum rather than a percentage. It would perhaps be better to amend the Brokerage contract to purchase to provide a lump sum if a remuneration percentage was provided therein.

SCENARIO 1: You draft a Promise to purchase (PP) for your buying client, but the seller is not represented

1. The price you indicate under clause 4.1 of the Promise to purchase will be the offering price including the remuneration, plus taxes, due to the buyer’s agency (or broker acting on his own account) under the Brokerage contract to purchase (i.e. the offered price to which will be added the amount of the remuneration plus taxes);
2. Under clause 13.1 of the Promise to purchase, it will be important to enter the number of Annex R – Residential immovable so that it forms an integral part of the PP;
3. Under clause R2.5 of Annex R – Residential immovable, you must enter the same percentage or amount indicated in the Brokerage contract to purchase;
4. You will need to explain to the seller and to your client that the price offered includes your share of remuneration, plus applicable taxes, and specify the share which the seller will receive once these sums are deducted, exactly the same as you would if you were the seller’s broker in a situation where there is no Brokerage contract to purchase. To make your task easier, the new version of the form will now include a section in clause R2.5 to break down the sums payable to the seller. Simply complete this section.

Let’s take the following example:

The remuneration specified in the Brokerage contract to purchase is $6,000 (taxes included).

The purchase price is increased by $6,000, which is the amount due that will be deducted from the sale price.

Clause R2.5 will therefore be completed as follows:

As the seller is not represented, because he did not sign any Brokerage contract to sell, the following statement: “MINUS remuneration of the seller's agency or broker under the brokerage contract - sale” is not applicable.

Note that in case of a counter-proposal, it won’t be necessary to complete the form Annex R – Residential immovable again. However, you will need to ensure that the seller understands the principle and is able to estimate the amount offered to him.

SCENARIO 2: You draft a Promise to purchase for your buying client, and the seller is represented

Note that in this scenario, you may use the procedure described below only if the remuneration offered to you as buyer’s broker by the seller’s broker is less than what is indicated in your Brokerage contract to purchase. In fact, if your remuneration share covers what is specified in the Brokerage contract to purchase, the clause 11.4 of the Promise to purchase will suffice to allow you to receive your remuneration.

In the case where the remuneration indicated in the Brokerage contract to purchase is not completely covered by the share you receive from the seller’s broker:

1. The price you enter under clause 4.1 of the Promise to purchase will be the price offered including the portion of remuneration indicated in the Brokerage contract to purchase exceeding what you will receive as buyer’s broker, and the taxes on this portion;
2. Under clause 13.1 of the PP, it will be important to enter the number of the Annex R – Residential immovable so that it forms an integral part of the PP;
3. Under clause 11.4, indicate the name of agency or broker acting on his own account who represents the seller;
4. Under clause R2.5 of Annex R – Residential immovable, you must enter the same percentage or amount as indicated in the Brokerage contract to purchase;
5. You will need to explain to the seller’s broker and your client that the price offered includes your share of remuneration, plus applicable taxes, and specify the share which the seller will receive once these sums are deducted. To make your task easier, the new version of the form will now include a section in clause R2.5 to break down the sums payable to the seller. Simply complete this section.
6. The seller’s broker will have to bring to the attention of his selling client the fact that the latter must also subtract the amounts indicated in clause R2.5 the remuneration amount provided in the Brokerage contract to sell binding them.

Let’s take the following example:

The remuneration specified in the Brokerage contract to purchase is $6,000 (taxes included).

A remuneration sharing agreement provides for remuneration of $5,000 (taxes included) to the buyer's broker.

The purchase price will be increased by $1,000 (i.e. $6,000 minus $5,000, which is the remaining amount due following the remuneration sharing agreement and which will be deducted from the sale price.

Clause R2.5 will therefore be completed as follows:

As a buyer’s broker, you obviously may not know the remuneration amount due to the seller’s broker under the Brokerage contract to sell binding him to the seller. That’s why no space was provided for this information. Nevertheless, the statement “MINUS remuneration of the seller's agency or broker under the brokerage contract - sale” has been provided at the end of the box.

It’s up to the seller’s broker to bring to the attention of his selling client the fact that the remuneration amount indicated in clause 7.1 of the Brokerage contract to sell binding them should also be subtracted from the sums specified in clause R2.5.

Note that in case of a counter-proposal, it won’t be necessary to complete the form Annex R – Residential immovable again. In accordance with his duty to advise, the seller’s broker must ensure that his client understands the principle and is able to estimate the amount offered to him.

REMINDERS

• If the immovable considered by your buyer is an FSBO (For sale by owner), it is no longer possible for you to sign a Brokerage contract to sell with the seller to ensure the payment of your remuneration.
• In such a case, you will need to agree on your remuneration with the buyer by signing a Brokerage contract to purchase. Indeed, this rule reflects reality, since your client is the buyer, not the seller.
• Clause R2.5 cannot be used to remedy a dispute over the efficient cause of the sale.