Agreements Between a Brokerage and Its Registrants

These contracts look dull until somebody leaves. Then they decide who is owed a commission on a deal that closes next month, and who may call which client.

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Commission VestingDeparturesFile OwnershipCovenants

Agent Agreements | Vesting | Departures | Restrictive Covenants

The clauses that get tested.

When commission vests, which decides who is paid for a deal that closes after a departure.

Who owns the file and the client relationship, which is rarely stated and usually assumed.

Restrictive covenants, which Ontario courts read narrowly and often strike out entirely.

Independent contractor status, which does not survive merely because the agreement says so.

Quick Answer

What should a brokerage agent agreement actually settle?

Four things, and the first is the one most often left vague. When does commission vest? If it vests on the firm deal, a registrant who leaves before closing is still owed. If it vests on closing and receipt of funds, they are not. Both are defensible positions but the agreement has to choose one, because the default is an argument. Second, who owns the file and the client relationship, which sounds obvious until a departing registrant takes a listing with them. Third, what restrictions apply after departure, bearing in mind that Ontario courts construe restrictive covenants narrowly and will strike an overbroad clause rather than narrow it. Fourth, the nature of the relationship itself, since describing a registrant as an independent contractor does not make them one if the substance points elsewhere.

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THE VESTING QUESTION

When Is the Commission Earned?

This is the single most litigated point in the relationship and it is usually resolved by a sentence that was never written. A registrant negotiates a deal in March, resigns in April, and the transaction closes in June. Who is paid?

The answer depends entirely on when the agreement says commission vests. If it vests when the agreement of purchase and sale becomes firm, the departing registrant has earned it and the brokerage owes it whatever happened afterwards. If it vests on closing and receipt of funds by the brokerage, and the registrant was no longer with the brokerage at that point, they may have earned nothing.

Neither approach is wrong. What is wrong is leaving it unstated, because then both parties act on the assumption that favours them and the dispute is about credibility rather than terms. If the brokerage wants vesting on closing, it should say so plainly, and it should expect to justify it, because a registrant who did all the work and is paid nothing will look sympathetic.

OWNERSHIP

The File, the Listing and the Relationship

A related question is what a departing registrant may take. The client relationship is not property in the ordinary sense; a seller may instruct whichever brokerage they wish. But the listing agreement is between the seller and the brokerage, not the individual, and the file, the records and the transaction documents belong to the brokerage.

That distinction matters when a registrant leaves and the client wants to follow. The client generally may follow. The listing does not automatically travel with them, and the brokerage has record retention obligations that do not disappear because the person who created the records has gone.

A well drafted agreement says what happens to active listings on departure, whether they are assigned, retained or released, and on what commercial terms. Without that, the brokerage and the registrant end up negotiating in the worst possible circumstances, which is to say after the relationship has already broken down.

COVENANTS

Why Aggressive Non-Competes Usually Fail

Brokerages frequently want a clause preventing a departing registrant from soliciting clients or competing nearby. Ontario law permits restrictive covenants in a commercial relationship but construes them narrowly, and a clause wider than the legitimate interest it protects will generally be unenforceable rather than trimmed to a reasonable size.

The result is that an overbroad clause is worse than a modest one. A brokerage that prohibits all competition anywhere for two years frequently ends up with nothing at all, while a brokerage that prohibits direct solicitation of specific clients for a short period may well have something it can enforce.

The more reliable protections are usually not restrictive at all. Confidentiality obligations over brokerage records, clear ownership of listings, and a vesting rule that removes the financial incentive to time a departure will each do more real work than a broad covenant that a court declines to enforce.

STATUS

Independent Contractor, or Something Else?

Most registrants are engaged as independent contractors and the agreement usually says so. Saying so is not determinative. If a dispute arises, the substance of the relationship is examined: control over how the work is done, whose tools and systems are used, whether there is a genuine opportunity for profit and risk of loss, and how integrated the person is into the business.

The consequences of getting this wrong are not confined to the contract. They reach into obligations that only arise in an employment relationship, and they can surface years later when somebody who was treated as a contractor throughout claims something that only an employee is entitled to.

The practical answer is to make the substance match the label. If the brokerage wants a contractor relationship, the arrangement should look like one in how it actually operates, not merely in how it is described. That is a structural question about the brokerage model rather than a drafting question, which is why it is worth thinking about before the agreements are written rather than after.

Common Questions

Frequently Asked Questions

Who gets the commission if a registrant leaves before closing?

It depends on when the agreement says commission vests. Vesting on a firm agreement of purchase and sale favours the departing registrant. Vesting on closing and receipt of funds by the brokerage favours the brokerage. If the agreement does not say, the question becomes a factual argument about what was understood, which is expensive and unpredictable.

Can a client follow a registrant to a new brokerage?

Generally yes. The client chooses their representation. But the listing agreement is with the brokerage rather than the individual, and the file and records belong to the brokerage, so what actually happens to an active listing depends on the terms and on what the parties agree at the time.

Are non-compete clauses enforceable against registrants?

Sometimes, but narrowly. Ontario courts construe restrictive covenants strictly and will usually strike an overbroad clause rather than rewrite it into something reasonable. A narrow non-solicitation clause of short duration has a far better prospect than a wide non-competition clause, which frequently fails altogether.

Does calling a registrant an independent contractor make them one?

No. The label is a factor but the substance governs. Control, integration into the business, whose systems are used and whether there is genuine opportunity for profit and risk of loss all matter. A relationship that operates like employment may be treated as employment despite the wording.

Should the agreement deal with what happens to records?

Yes, and it is commonly overlooked. The brokerage has record retention obligations that continue after a registrant departs, so the agreement should be clear that records stay with the brokerage and that the departing registrant will not remove or retain copies beyond what is permitted.

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Call Message

Agreements Between a Brokerage and Its Registrants

What should a brokerage agent agreement actually settle?

Speak to a Real Estate Lawyer

When Is the Commission Earned?

The File, the Listing and the Relationship

Why Aggressive Non-Competes Usually Fail

Independent Contractor, or Something Else?

Frequently Asked Questions

Have Your Agent Agreements Reviewed

Lexaltico LLP

Ready to Talk? Start My Enquiry

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