Real Estate Broker Commission After Expiry of Authority to Sell: When is Commission Still Due?

Introduction

In the Philippine real estate sector, brokers play a pivotal role in facilitating property transactions, often under a formal "authority to sell" agreement with property owners. This authority typically grants the broker an exclusive or non-exclusive right to market and negotiate the sale of a property for a specified period. Upon successful sale, the broker earns a commission, usually a percentage of the sale price. However, disputes frequently arise when the authority expires without a sale, but the transaction is later consummated. The central question is: under what circumstances is the broker still entitled to commission post-expiry?

This article explores the legal framework governing such scenarios in the Philippines, drawing from the Civil Code, the Real Estate Service Act (RESA) or Republic Act No. 9646, and pertinent jurisprudence. It examines the conditions under which commission remains due, the procuring cause rule, protections against bad faith, and practical implications for brokers and principals.

Legal Framework Governing Brokerage Agreements

The Nature of Authority to Sell

The authority to sell is essentially a contract of agency under Articles 1868 to 1932 of the Civil Code of the Philippines. Article 1868 defines agency as a contract whereby a person (the agent or broker) binds himself to render service or do something in representation or on behalf of another (the principal or property owner), with the latter's consent or authority. In real estate, this manifests as a written authorization allowing the broker to find buyers and negotiate terms.

Under Article 1927, agency terminates upon the expiration of the period for which it was constituted. Thus, once the authority lapses, the broker generally loses the right to act on behalf of the principal or claim commission for subsequent sales—unless exceptions apply.

Regulation Under RESA

Republic Act No. 9646, enacted in 2009, professionalizes real estate services and mandates licensing for brokers. Section 31 requires brokers to act with fidelity, good faith, and professionalism. While RESA does not explicitly address post-expiry commissions, it reinforces ethical standards, prohibiting acts like misrepresentation or circumvention that could deprive brokers of earned fees. Violations can lead to sanctions by the Professional Regulation Commission (PRC).

Commission rates are not fixed by law but are typically 3-5% for residential properties and higher for commercial ones, as agreed in the authority. The law implies that commissions are earned when the broker's efforts result in a perfected sale, defined under Article 1458 of the Civil Code as a contract where one party obligates to transfer ownership for a price certain.

When Commission is Still Due After Expiry

The general rule is that no commission is payable if the sale occurs after the authority's expiry. However, Philippine courts have carved out exceptions to prevent unjust enrichment and protect brokers' legitimate efforts. These exceptions hinge on causation, timing, and good faith.

The Procuring Cause Rule

The cornerstone principle is the "efficient procuring cause" doctrine. A broker is deemed the procuring cause if their actions initiated a chain of events leading to the sale, even if consummated post-expiry. This rule ensures brokers are compensated for introducing buyers and advancing negotiations during the validity period.

Key elements for application:

Introduction of the Buyer: The broker must have presented the buyer to the principal while the authority was active. Mere marketing without direct introduction may not suffice.
Continuous Negotiations: If negotiations started during the agency and continued without interruption, leading to a sale shortly after expiry, commission is due. Courts assess if the broker's involvement was substantial and not supplanted by others.
Readiness and Ability of the Buyer: The buyer must be able, ready, and willing to purchase on terms acceptable to the principal, as per jurisprudence.

For instance, if a broker introduces a buyer who inspects the property and makes an offer before expiry, but the sale closes a month later due to documentation delays, the broker remains entitled.

Bad Faith or Circumvention by the Principal

Commission may still be owed if the principal acts in bad faith to evade payment. This includes:

Deliberately allowing the authority to expire to negotiate directly with the broker-introduced buyer.
Misrepresenting facts to the broker about the sale's status.
Entering into side agreements to exclude the broker.

Article 19 of the Civil Code mandates good faith in contractual dealings, and violations can render the principal liable for damages, including lost commission. RESA's ethical provisions further bolster this, allowing brokers to seek administrative remedies.

Reasonableness of Time Lapse

Courts evaluate the time between expiry and sale. A short interval (e.g., weeks or months) strengthens the broker's claim, implying continuity. Prolonged delays (e.g., years) weaken it, unless evidence shows ongoing broker influence. No fixed statutory period exists; it is case-specific.

Exclusive vs. Non-Exclusive Authority

In exclusive authorities, the principal cannot sell through others during the term, and post-expiry protections are stronger. Some agreements include "extension clauses" granting commission for sales to broker-introduced buyers within a set period post-expiry (e.g., 90-180 days). Non-exclusive authorities offer less protection, as multiple brokers may compete.

Relevant Jurisprudence

Philippine Supreme Court decisions provide concrete guidance:

Prats v. Court of Appeals (G.R. No. L-39838, January 31, 1987): The Court held that a broker is entitled to commission if they are the efficient procuring cause, even after agency expiry. Here, the broker introduced the buyer and facilitated initial talks; the sale post-expiry did not negate entitlement.
Manotok Bros., Inc. v. Court of Appeals (G.R. No. 94747, April 7, 1993): Reiterated the procuring cause rule, emphasizing that if the principal sells to a buyer found by the broker, commission is due unless the broker abandoned efforts.
Inland Realty Co. v. Court of Appeals (G.R. No. 119077, July 5, 1996): The Court awarded commission where the principal circumvented the broker by dealing directly with the introduced buyer after expiry, citing bad faith.
Tan v. Gullas (G.R. No. 143978, July 5, 2000): Clarified that commission accrues upon perfection of sale, not payment, and applies post-expiry if the broker's role was instrumental.
Medrano v. Court of Appeals (G.R. No. 150251, August 24, 2007): Affirmed that without proof of procuring cause, no commission is due, but highlighted the need for factual evidence of the broker's contribution.

These cases underscore that entitlement is fact-dependent, requiring evidence like correspondence, buyer affidavits, or transaction records.

Quantum and Enforcement of Commission

Determining the Amount

Commission is based on the agreed rate in the authority. If unspecified, courts may apply industry standards or quantum meruit (reasonable value of services). Under Article 2142 of the Civil Code, brokers can claim on this basis if efforts benefited the principal.

Taxes apply: Commissions are subject to 12% VAT if the broker is registered, and withholding tax under Revenue Regulations.

Remedies for Brokers

Civil Action: Sue for collection under breach of contract or unjust enrichment (Articles 1157 and 22, Civil Code). Venue is the principal's residence or property location.
Administrative Complaint: File with PRC for ethical violations under RESA.
Criminal Liability: Rare, but fraud or estafa (Article 315, Revised Penal Code) may apply in egregious bad faith cases.
Preventive Measures: Brokers should include clear post-expiry clauses in authorities, document introductions, and secure buyer acknowledgments.

Principals can defend by proving the broker was not the procuring cause, the buyer was independently sourced, or the authority was revoked for cause (e.g., broker misconduct under Article 1920).

Practical Implications and Best Practices

For brokers:

Draft authorities with extension clauses and detailed commission terms.
Maintain records of buyer interactions.
Renew authorities promptly if negotiations are ongoing.

For principals:

Communicate clearly on expiry and avoid direct dealings with introduced buyers without settling commissions.
Use non-exclusive authorities for flexibility, but honor good faith obligations.

In an evolving market, with digital platforms and foreign investments under Republic Act No. 11232 (Ease of Doing Business Act), brokers must adapt while adhering to these principles.

Conclusion

The entitlement to commission after the expiry of authority to sell in Philippine real estate hinges on the broker's role as the efficient procuring cause, absence of bad faith, and reasonable temporal proximity to the sale. While the Civil Code and RESA provide the foundational rules, jurisprudence refines their application, balancing protection for brokers against principals' autonomy. Parties should prioritize clear agreements and ethical conduct to minimize disputes, ensuring the real estate sector's integrity and efficiency.