Does a corporate buyer of a property owe commission to the real estate agent who introduced a previous corporate buyer to same property, where the first purchase was aborted just before the second purchase agreement was signed? The Superior Court of Justice discussed this complex question in Re/Max Realtron Realty v. 2458313 Ontario Inc.
A real estate agent, Ming Ren, introduced Qingxin “Newry” Shao and spouse Zoubo “Steven” Gu to a property at 220 McRae St. in Toronto. Shao and Gu advised Ren that they wanted to put together an investor group to purchase the property collectively. Shao and Gu, along with other investors (Zongqing “Cary” He, Zong Jiang “Logan” He, Mingxing “Reego” Xue, and Sheng Wei “John” Xue), using 2458313 Ontario Inc. (245) as the corporate vehicle, entered into an agreement of purchase and sale with the property’s owner, 8159432 Canada Corp. (815) for $6,650,000. The agreement had a conditional clause that gave the buyers a 10-day grace period to conduct due diligence. Upon visiting the property and reviewing some of the documents provided by Ren, some of the investors did not want to buy the property. As a result, 245 got out of the transaction.
The second agreement:
When the first agreement was terminated, Shao and Gu, who were still interested in the property, were introduced to another potential buyer, Jiayi He. Gu and He incorporated 2524991 Ontario Corporation (252) and found additional investors. Ultimately, the second agreement of purchase and sale was signed between 252 and 815.
The agent, Ren, brought an action against 245 arguing that he was entitled to a commission. Ren argued that 245 was just a shell company and that Shao and Gu used it to investigate the property but that their goal was to buy the property under a different guise in order to avoid paying him his commission.
The court disagreed with Mr. Ren and found that there was no intentionality in terminating the first agreement because:
- Ren was aware of Shao and Gu’s efforts to put together an investment group. In fact, Ren communicated with the other investors through WeChat;
- Ren knew that the closing date was not crystalized because the investors wanted to conduct their due diligence;
- A number of investors were not happy with the property once they inspected it and reviewed documents provided by Mr. Ren (insurance policy, property tax assessment). One of the investors, He, summarized all of his concerns regarding the property to Ren in WeChat;
- Ren acknowledged that he understood that the transaction was not terminated solely by Shao and Gu.
Ren also argued that it was coincidental that Shao and Gu, two principals of 245, were heavily involved in 252. The court once again disagreed with Ren because the corporate records showed that Shao and Gu were not the only investors involved in 252. Additionally, none of the other 245 principals were involved in 252 in any way.
In sum, real estate agents should be cautious when representing corporate buyers owned by multiple investors. If a sale does not close because some of the investors are not satisfied with the property upon conducting due diligence, the real estate agent might not be paid his or her commission.
Eugenia Bashura joined Boghosian + Allen LLP in 2019 to complete her articles. She is a graduate of the University of Windsor.