Plain Speaking From a Lawyer

Most SIOR professionals work from a well-drafted, carefully constructed exclusive listing agreement. Likely, great thought has been given to the terms and content, and especially as to how commissions are computed. My guess is that if I surveyed readers and asked if they ever had problems collecting a fee or two, many would grudgingly admit that it occasionally happens. If I pressed you on the circumstances surrounding the collection issue, I would bet that more often than not, the commission agreement at issue was NOT one of your own making. I know, in some cases, that a once well-drawn listing agreement was negotiated. In other times, an owner insisted on use of his or her own document; and maybe the final product deviated from its starting point, whether from your own agreement or from the owner’s. Yes, the document started as pristine and clear; but just because it was well typed and legible, and even though it has been scrutinized by client and broker alike— and perhaps it even had the “benefit” of the parties’ counsels’ comments—it may not be perfect. BE AWARE that an agreement might lend itself to different interpretations, especially where there is money at stake, and especially so at the end of a listing relationship. Where the rubber meets the road—i.e. when the pen hits the checkbook—differing interpretations magically appear.

I am happy to represent a suburban commercial brokerage firm here in the Chicago area, ably staffed with hard working professionals, the beneficiary of a strong name earned by two generations of family ownership, and happily functioning in a positive, expanding, and lively market. All signs point to good things for this firm, and the award of a seven property exclusive leasing assignment about a year ago pointed to more good things. The property owner was a group of young ex-employees of a successful REIT, used to acting as an institution might, and regrettably, accustomed to having its own way. That predilection led to use of the owner’s form of listing agreement, negotiated a bit. But the thought of leasing seven retail centers was pretty enticing, and the thought of losing that opportunity led to acceptance of the owner’s document with just a few minor tweaks. As the initial listing term drew to a close—and with staff cuts in the owner’s organization a sad necessity—the leasing listing was terminated, and leasing was given to  a competitor. It happens, and happens sometimes without the fault of either party, but the temperature dropped. Issues emerged when my client sought to protect its rights to pending deals and sought to collect earned fees.

At the outset of the listing term, this owner had several exclusions—after all why pay a new broker when deals which were already in progress came to fruition during the broker’s listing term? Fair enough you say, so long as the exclusion period was reasonable, and finite; in this case 180 days—albeit a little long for my taste. The one-year listing expired, and my client registered its prospects and pending deals, only to face resistance on several fronts. First, the owner decided its exclusions applied at the end of the listing term, not the first 180 days, but 180 days AFTER the listing expired. In my first 42 years of practice, I had yet to see an owner’s exclusions apply AFTER the listing ended. That was only the beginning.

The owner then added salt to the wound, rejecting many of my client’s prospects for post term protection. My client had the right to protection for all tenants who were in negotiations—a term that I have come to learn could mean different things to different people—but this owner decided that it would only recognize prospects who had a signed LOI (letter of intent, which left my client staring slack jawed at its former client.

Even commissions on leases that had been completed came under fire. The commission schedule was one of those “tiered” schedules, $X per foot for the first 5,000 feet, $Y per foot for the next 5,000 square feet, and $Z for the next 10,000 feet. Because this was a money issue—i.e. earned and unpaid commission—the conflict got real in a hurry. The owner took the unusual position that when a lease exceeded the 5,000 square foot threshold, the commission rate per square foot not only dropped from X to the next rate Y, that lower rate applied to the entire leased area. This led to a rather odd result, one surely not intended by a broker; but unfortunately as clearly explained in this listing agreement as it might have been. Sprinkle in a few holiday season recorded liens, and the air became even frostier.

My point here is that a clearly drawn listing could have eliminated these rather odd questions of interpretation and would have allowed the parties to part company a bit more amicably—i.e. without seven liens and a lawsuit on the horizon. Your takeaway this time: read that heavily negotiated listing at a time when all parties are still on the same page, ask yourself if language is capable of differing interpretations, and hammer out language that leaves no doubt. Maybe that lawyer down the street can help you out, at a lower expense than the dispute a year later will cost. Just sayin’.