Contracts & Broker Agreements – Continued

Defining the Brokerage Relationship & Services

“Brokerage Agreement” means the written agreement (Contract) creating a Brokerage relationship between a Client and a Licensee.  The Brokerage agreement must clearly state whether the Licensee represents the Client as an Agent (Standard Agency) or as an Independent Contractor (non-Agency).

Changes to Virginia Legislature per HB 1907 require that all Brokerage agreements be in writing.  There were also some technical amendments and provisions, which have required certain Broker agreements, Contracts and Disclosure forms to be revised.  The changes have been outlined below.  Remember, the goal is to create processes which clearly identify and define, to all parties, what type of professional relationship and agreement they are entering into.

The Brokerage agreement must adhere to the following provisions:

  • Have a definite termination date.  If a Brokerage agreement does not specify a definite termination date, then Virginia law imposes that said brokerage agreement shall terminate 90 days after its commencement;
  • Define the amount of the Brokerage fees and how and when such fees are to be paid;
  • Outline the services to be rendered by the licensee;
  • Identify any other terms the parties have agreed to as part of the Brokerage relationship; and
  • In cases where a brokerage agreement is entered into as a result of and in conjunction with the Client’s consent to Dual representation, then certain Disclosures set out in Virginia Code § 54.1-2139 are triggered.

Agency Disclosure may be given in combination with other disclosures or provided with other information, but if so, the disclosure must be conspicuous, printed in bold lettering, all capitals, underlined, or within a separate box.  In the following chapter we will discuss in detail the changes HB 1907 will have on Agency Disclosure.

Contract Termination

We’ve discusses how Contracts are formed, what must exist and other components.  Now let’s address the end of a Contract, or at what point there are no additional Duties required by the parties and therefore the contract terminates.

When parties have fully performed, Executed, their obligations under the contract and all conditions have been satisfied, then the contract is said to have “discharged”.  This would be the Licensees preferred method of contract termination, as full performance also suggests we’ll be compensated.  However, there are other ways a contract can be terminated as outlined below:

  • Performance
    • As discussed above.
  • Rescission/Cancellation Agreements
    • Rescission or cancellation agreements refer to agreed upon remedies in a Contract that allow parties to terminate the Contract, and return to their original position, under specified conditions.  It is not necessary to prove that money damages were suffered in order to rescind a Contract.  Some laws, permit purchasers to rescind a contract for any reason whatsoever for a limited time, such as reviewing Homeowner Association documents or when refinancing a mortgage.  These rescission periods usually from 3 to 10 days and are commonly referred to as a “cooling off periods”.  A Contract may also be rescinded by mutual agreement of the parties.
  • Revoke
    • A contract can be revoked, which is to void or annul by withdrawing, prior to acceptance under most circumstances, by the party legally entitled.
  • Abandonment
    • Abandonment occurs when one party to a Contract fail to perform their duties as agreed.  If one party abandons their Contractual obligations, the other party may be relieved of their responsibility to perform.
  • Breach
    • Breach of Contract specifically refers to a violation of the Contracts terms and conditions without legal excuse.  For example, should the Seller decide during the Executory period of the Purchase agreement that they no longer wish to sell.  If the Seller lacks a valid legal excuse, then they would be in breach of the Contract and the injured party can seek action, as defined within the contract, for monetary damages or specific performance.  In order to enforce specific performance, the non-defaulting party would need to ask the Courts to compel the breaching party to perform.
  • Time
    • Contracts often express time tables for when parties must complete certain provisions.  For example, the date in which closing is to occur.  In Virginia these dates are usually expressed in one of two ways: “reasonable time” or “time is of the essence”.  As a general rule most Contracts imply “reasonable time”, providing a margin of leeway, and therefore dates are not strictly enforced.  However, if parties selected “time is of the essence”, then the contract dates indicated would be strictly enforced and if not met, the defaulting party would be in breach of contract.  It’s important to know, that Virginia Code does not defined “reasonable time”.  One party may feel 7 days is reasonable, where the other might feel 45 days is acceptable.  A dispute regarding what is “reasonable” and to enforce the terms of the Contract would require Court ruling.

If the time frame for performing under the contract has expired, or if a party is entitle to revoke does, then the Contract would be terminated.

Licensee Duties After Termination

Except as otherwise agreed to in writing, a licensee owes no further duties to a client after termination, expiration, or completion of performance of the brokerage relationship, except to

  • Account for all moneys and property relating to the brokerage relationship and
  • Keep confidential all personal and financial information received from the client during the course of the brokerage relationship and any other information that the client requests during the brokerage relationship be maintained confidential, unless otherwise provided by law or the client consents in writing to the release of such information.

Avoid disciplinary action.  It is a violation of VREB Regulation 18 VAC 135-20-290 to enter into a Brokerage agreement that does not (i) specify a definite termination date; (ii) provide a mechanism for determining the termination date; or (iii) is not terminable by the Client.

Author: Lee Gosselin, Associate Broker & Owner

 

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