Can a real estate agency transfer its claim for the compensation it is owed to its broker in order for the latter to claim it himself?

This post, published on Éditions Yvon Blais’ blog on real estate on February 7, 2019 (FR), deals with the decisions rendered in Services immobiliers Gestram inc. (Sotheby's International Realty Quebec) v. Ohannessian by the Court of Appeal (Full Text) and Paradis v. Trudel by the Superior Court (Full Text), in which the court discusses the legitimacy of the assignment of a claim for a real estate broker’s compensation from a real estate agency to its broker. 

In fact, according to the provisions of the Real Estate Brokerage Act, the compensation due to a real estate broker working for a real estate agency must be paid to the agency and not to the broker directly, even if the broker may ultimately receive more than 80% to 90% of the compensation as in most cases, if not more.

In these decisions, the court recognizes that an assignment of the real estate agency’s claim to compensation that is ultimately to be paid to its real estate broker does not constitute a sale of a litigious right within the meaning of section 1784 C.C.Q., even if the assignment provides for the broker remitting a percentage of the amount collected to his agency. The court rightly considers it a legitimate case for the broker as it is the result of his work and the benefit that he could derive from it. The court also concludes that there is nothing in the Real Estate Brokerage Act prohibiting an agency from assigning its claim to the broker concerned.

From these decisions, and particularly from the Court of Appeal’s decision in Ohannessian, we retain that a real estate agency can legally assign its right to claim compensation from a defaulting seller or buyer to its real estate broker, such that the broker may undertake the necessary legal proceedings himself against this defaulting seller/buyer in order to  recover the compensation that is the result of his work.

Therefore, and despite the fact that compensation must be paid to the real estate agency that entered into the brokerage contract, there are no provisions that explicitly prohibit a real estate agency’s assignment of its right to claim compensation from a defaulting seller/buyer for its broker’s benefit.

Generally, a real estate agency often has a very limited financial interest in undertaking legal proceedings for the recovery of compensation, given that the vast majority of the compensation goes to its broker, with the agency’s percentage of the compensation generally being less than 8%.

All signs point to this approach becoming increasingly common in the future, as it allows real estate brokers to directly pursue claims of up to $15,000 at the Court of Quebec’s Small Claims Division at a low cost, particularly when the real estate agency cannot apply to the Small Claims Division because it has more than 10 employees.

Ultimately, many real estate agencies cannot apply to the Small Claims Division because they have more than 10 employees, which forces them to institute their recourses at the Civil Division of the Court of Quebec and to retain the services of a lawyer, as they cannot represent themselves without a lawyer if they are corporations, making it such that the legal costs/fees that generally fall upon the broker are significantly higher.