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Broker Beware: Get your commission agreements in writing

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By Phil Kaplan

Phil Kaplan

Phil Kaplan

You are a commercial real estate broker.  A potential client asks you to find a space in town for him to lease or buy.  You want his business and he seems trustworthy, so you do not ask him to sign a formal commission agreement.  You just shake his hand and thank him for the opportunity.  For several months, you hustle to find a space for your new client.  You show him dozens of buildings.  You exchange emails with him and talk to him on the phone multiple times per week.  But one day, your client goes silent.  He stops returning your messages.  You do not understand what happened until you hear through the grapevine that your client decided to buy one of the buildings you showed him – without telling you.  When you demand that he pay you a commission, he refuses.  He exploited your hard work but he will not compensate you for it.  What do you do?

While you have a sympathetic story, your legal options are limited because you did not get your commission agreement in writing.  Minn. Stat. § 82.85, sub. 2, prohibits a licensed real estate broker from filing a lawsuit “for any commission, fee or other compensation with respect to the purchase, sale, or other disposition or conveyance of real property, or with respect to the negotiation or attempt to negotiate any sale, lease or other disposition or conveyance of real property unless there is a written agreement” with the broker.  Id. (emphasis added).  See also Minn. Stat. § 82.66 (requiring seller’s listing agent contracts and residential buyer’s broker contracts to be in writing).

Except in the rare case where the broker has provided services and the client has already started paying commissions pursuant to an oral agreement, see Rosenberg v. Heritage Renovations, LLC, 685 N.W.2d 320, 325-26 (Minn. 2004), an unwritten agreement to pay commissions to a real estate broker is unenforceable.  Minnesota courts have rejected implied contract, quasi contract, unjust enrichment, and promissory estoppel claims by brokers seeking to collect commissions.  Cityscapes Development, LLC v. Scheffler, 866 N.W.2d 66, 72-73 (Minn. Ct. App. 2015); Krogness v. Best Buy Co., Inc., 524 N.W.2d 282, 286-87 (Minn. Ct. App. 1994).  Enforcing a written contract for commissions is the only surefire way for a real estate broker to recover commissions in court.

To satisfy the writing requirement, documents must exist that set forth all of the “essential terms” of the parties’ agreement.  Poser v. Abel, 510 N.W.2d 224, 227 (Minn. Ct. App. 1994).  At a minimum, the agreement must include the identities of the parties and the consideration to be exchanged (i.e., the services the broker will provide and the method of calculating the commissions the client will pay).  Id. at 228.  The agreement must also be signed by the client for the broker to enforce it.  Argent Real Estate Services, LLC v. Kaminski, 2007 WL 2998593, *1 (Minn. Ct. App. Oct. 16, 2007).

The ideal contract would have the words “COMMISSION AGREEMENT” at the top of the first page, followed by comprehensive and detailed terms and signature blocks for both parties at the end, but that level of formality is not necessary to satisfy the statute’s writing requirement.  A short letter signed by the client may suffice if it reflects the essential terms of the parties’ agreement.  See, e.g., Poser, 510 N.W.2d at 228; R.M. Parranto Co., Inc. v. Bernick, 354 N.W.2d 600, 603-04 (Minn. Ct. App. 1984).  An exchange of emails may even be enough.  An electronic signature is just as enforceable as a “wet ink” signature written in pen, as long as the parties’ conduct reflects an intent to do business by electronic means.  See Minn. Stat. §§ 325L.05, -07.  But see SN4, LLC v. Anchor Bank, fsb, 848 N.W.2d 559, 567 (Minn. Ct. App. 2014) (deciding emails did not reflect an intent to do business electronically, where the emails attached drafts of agreements that the parties were supposed to hand-sign).

The purpose of the statute requiring commission agreements to be in writing is “to protect innocent persons from unethical or overreaching real estate brokerage practices,” R.M. Parranto, 354 N.W.2d at 604, but an unfortunate side-effect of the statute is that unethical clients can sometimes take advantage of brokers who fail to insist on executing written contracts.  If you are a broker, do not depend on handshake deals with clients.  Get your commission agreements in writing.

Phil Kaplan is a business litigator at Anthony Ostlund Baer & Louwagie P.A. Since joining Anthony Ostlund in 2007, Phil has litigated a broad-range of business-related cases, with an emphasis on commercial real estate disputes. Phil has represented clients in a number of cases involving leasing issues. Examples of Phil’s cases are listed on his webpage.

 

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