A judge struck down claims that defendants conspired to “fix,” “maintain” and “increase” prices for buyer brokerage services, but allowed claims they sought to “control” prices to proceed.
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Homesellers aren’t only challenging real estate commissions in the United States. A proposed class-action lawsuit in Canada is moving forward after a federal court ruled that the plaintiff had a viable claim that several brokerages there entered into an “arrangement” to “control the supply of cooperating brokerage services” in the greater Toronto area.
The suit was originally filed in April 2021 by Toronto resident Mark Sunderland who objected to paying a 2.5 percent commission to a buyer’s brokerage when he sold his home in 2020. He filed the suit on behalf of all people who sold residential real estate listed on the multiple listing service owned and operated by the Toronto Regional Real Estate Board (TRREB), dating back to March 11, 2010.
TRREB is a defendant in the case along with the Canadian Real Estate Association (the National Association of Realtors’ counterpart in Canada), as well as seven brokerage defendants (including well-known firm Royal LePage Real Estate Services Ltd.) and five franchisor defendants (including RE/MAX Integra and Century 21 Canada).
According to the court’s Sept. 25 order, in Canada, as in the U.S., sellers generally pay a listing brokerage a commission to sell their home and the listing brokerage pays part of that commission to the brokerage representing the ultimate buyer of the home. As in the U.S., association rules “apparently oblige a seller of residential real estate listed on the Toronto MLS to make an offer of commission to any Cooperating Brokerage acting for a prospective buyer, thereby making the seller responsible to pay for the Cooperating Brokerage services used by the buyer.”
Sunderland’s complaint alleged that the brokerage defendants have violated section 45 of Canada’s Competition Act by entering into an “arrangement” to “fix, maintain, increase or control the supply of cooperating brokerage services” in the greater Toronto area. The complaint accuses the associations and the franchisors of of having “encouraged, counseled, aided, abetted, assisted and required” their members or franchisees to enter into and maintain the “arrangement.”
On Monday, Chief Justice Paul S. Crampton of Canada’s Federal Court struck down the plaintiff’s claims that the defendants conspired to “fix”, “maintain”, and “increase” the price for the supply of cooperating brokerage services, saying that those allegations “are not supported by sufficient material facts.”
“It is plain and obvious that those allegations are bound to fail,” Crampton wrote.
However, Crampton ruled that the plaintiff’s claim that the defendants conspired to “control” the cost of buyer broker commissions could proceed.
“By effectively requiring that such commissions only be paid by the seller of the property, through the Listing Brokerage, the Buyer Brokerage Commission Rule arguably controls the price of Cooperating Brokerage Services by preventing Cooperating Brokers from negotiating their commissions directly with their client, namely, the purchaser of the property in question,” Crampton wrote.
“To the extent that this explicitly excludes those on the ‘buying’ side of the transaction from having any role in establishing the price of Cooperating Brokerage Services, it is arguably an important form of control over such prices. It effectively eliminates a role for those who actually supply the Cooperating Brokerage Services, which represent half of the total brokerage services supplied in connection with any residential sale.”
The association rule, “on its face,” arguably imposes forms of control in regards to the price for the supply of buyer broker services, according to Crampton.
‘These include restrictions on who may pay Cooperating Brokerage commissions/compensation, and on when a change in such commissions/compensation may be requested and made,” he wrote.
“A further form of control is arguably imposed through the prohibition on using the terms of an Offer or an Agreement of Purchase and Sale to ‘include or modify’ a commission.”
The court rejected the association defendants’ contention that the plaintiff hadn’t sufficiently pleaded that they “aided, abetted or counseled the formation of an unlawful agreement,” noting that the association defendants “developed and promulgated the Buyer Brokerage Commission Rule, and then required their members to adhere to it.” Therefore, the plaintiff’s claims against the association defendants were allowed to proceed.
The court also found that the plaintiff had presented a viable claim that the brokerage defendants “aided, abetted or counseled the formation of an unlawful agreement,” but came to a slightly different conclusion in regards to the franchisor defendants. The court ruled that the franchisor defendants “aided” and “abetted” the formation of the alleged “arrangement,” but struck the allegation that they “counseled” their franchisees to violate the competition law.
“[M]erely requiring franchisees to sign a Franchise Agreement, which in turn requires them to comply with and implement TRREB and CREA’s Rules, implicitly including the Buyer Brokerage Commission Rule, does not arguably rise to the level of deliberately encouraging or actively inducing the commission of a criminal offence,” Crampton wrote.
Inman has reached out to CREA and TRREB for comment on the judge’s ruling and will update this story if and when responses are received.