Terminating an Agreement by incorporating 'out clauses'
April 5, 2017
In our consumer research, we often ask one particular question: if you’re unhappy with the service you are receiving from your licensee, do you think you can fire them and sign up with another licensee? Nine times out of 10, the answer we hear is a resounding yes.
We’re here to explain that it isn’t quite that simple.
Yes, there are ways for a consumer and licensee to part ways after they have signed a contract to work together, but they are slightly more complicated to execute than by a phone call or an email.
First, all brokerage agreements are legal contracts, which mean that both parties must agree to terminate. When you are asked to sign a brokerage agreement, in doing so you are agreeing to work with one particular brokerage (or designated agent of a brokerage) for a specific time frame. If in that time frame you decide that the licensee is not the right fit for you and they do not agree to terminate the contract, you may have to wait for the contract to expire.
Second, all brokerage agreements are with the brokerage itself, not the licensee you’ve agreed to work with. This is important because in some cases, one alternative to terminating the contract is for the broker to assign a different licensee to you so that you may continue on with the initial brokerage agreement.
Third, all brokerage agreements lay out specific scenarios when the agreement can be terminated, though it is also possible to add other conditions where the agreement can be terminated as long as both parties agree to adding it. These are sometimes referred to as ‘out clauses’. You may want to include an out clause to cover unique circumstances that would impact your ability to purchase or sell a home, for example, a clause that states that the agreement will terminate if the client suffers a severe illness or unexpected financial loss. It is also possible to include a termination clause in the event of poor service, for example, a clause that states that the client will give the brokerage three-weeks’ notice to terminate the contract if they are unsatisfied with the service from their licensee. Again, the addition of this kind of clause would have to be agreed to by the brokerage in order for it to make it into the brokerage agreement.
Finally, if you have concerns that cannot be resolved between you and the licensee, contact the brokerage’s broker and explain the situation. If speaking with the broker does not resolve the issue, speak with your lawyer to determine if there are grounds for early termination of the agreement.
The Commission encourages consumers to better understand the contracts put before them before they sign. Read more on the Buyer Brokerage Agreement and Seller Brokerage Agreement sections of our website, or contact us with your questions.