Does The Broker Get Paid? Efficient Producing Cause And The Facts

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Last week, we set the background for understanding what it means for a broker to be the “efficient producing cause” behind a lease or sale. The background was in the form of a story from a 2012 unpublished New Jersey court decision. The long version can be seen by clicking: HERE. For those who missed last week’s blog posting, here is a precis.

An individual property owner and a real estate broker executed a commission agreement. Then the owner transferred the property to a newly formed limited liability company. A drugstore lease, requiring the owner to construct the store, was signed. The drug store’s parent company guaranteed the lease. Construction (likely “non-construction”) took years. The tenant hung on. To get the project moving, the property was transferred to a joint venture, with the new 75% owner taking over operational responsibility. Under the joint venture agreement, the new entity agreed to be responsible under the original brokerage agreement. Two days after the joint venture agreement was signed, the owner terminated the brokerage agreement. More than two years after that, the original drug store lease was terminated and a new lease was signed. The new lease was between the joint venture and the original tenant’s successor by merger. Again, the drug store parent company signed a guaranty. All of the documents signed by each of the original and new drug store were signed by the same person who signed the guaranties. The business terms of the new lease differed in rent amount and lease term from the original lease. The store opened. [Read more…]

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Brokers As Efficient Producing Causes

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It is very common, and Ruminations believes appropriate, for a real estate broker to bargain for a commission to be paid if a property is sold or leased even after its brokerage agreement expires. Basically, most brokerage agreements have some language providing for such payment if the broker had something to do with bringing forth the buyer or tenant. Those provisions have to deal with three major principles

One is “how does one know that the buyer or tenant was introduced to the property by the broker during the term of the agreement?” Another is “what does ‘introduced’ mean in this context?” The last is, “how long after a brokerage agreement expires will this protection for the broker continue?”

As to the “how does one know” question, we think the broker should furnish a list of the prospects introduced to the property. And, “prospects” should include affiliates of whatever person or entity had been introduced. The broker should be preparing its list throughout the term of the brokerage agreement and should deliver the final list at the end of the agreement’s term or within a day or two later. As to what is meant by “affiliate,” we think any normal definition would be fine so long as it captures real affiliates, not just people with the same first name. [Read more…]

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Brokerage Statutes – Shield Or Sword?

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For some reason, it seems that the business of real estate brokerage is subject to a little more scrutiny than experienced by other businesses. For example, there is a common law principle known as the Statute of Frauds. A book could be written about this aspect of the common law and its subsequent incorporation in most state statutes (written law). We won’t write one today.

Most jurisdictions have some form of a Statute of Frauds, and it appears that all or almost all “derive from the Statute for the Prevention of Frauds and Perjuries passed by [the English] Parliament in 1677.” Despite such a lofty name, some have described these laws as “Statutes to Perpetrate Fraud.”

We aren’t going to assume that all readers already know what this kind of “Statute” covers, so here goes. When someone speaks of the Statute of Frauds, she or he is referring to a law that requires enforceable agreements to be in writings signed by the parties against whom someone wants the agreement enforced. The Statute never applied to all agreements and good quality Swiss cheese doesn’t have as many holes as does the Statute of Frauds. [Read more…]

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So, Exactly What Does A Broker Bring To The Table In 2015?

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The “third rail” has been in the news for the last few days and that made Ruminations think about posting this piece having to do with the role of brokers in commercial lease transactions. At the risk of needing to purchase a bespoke Nomex suit crafted to protect against possible flaming, we proceed.

Brokers make the marketplace work. They connect parties who might not have known of each other’s interests in the absence of the broker’s efforts. Certainly, the internet and the information age have made information readily available that historically had been in the “secret” files of the brokerage community. If, however, that were the only grip a broker had over prospective buyers, sellers, tenants or landlords, the show would have been over a long time ago – the curtain would have fallen.

[Read more…]

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What Should a Leasing Brokerage Agreement Say?

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Let’s see if Ruminations can work near the third rail without touching it. No flaming please.

There are two kinds of lease brokerage agreements: the ones that appoint a broker to represent a property or a particular leasable space; and, the ones for a specific deal on the table. In our experience, retail leasing brokerage agreements are frequently written for a particular lease. That doesn’t mean that there aren’t a lot of leasing assignment brokerage agreements, but it sure seems that the one-up ones are pretty common. So, today’s discussion today will be biased toward this variety. If we don’t get electrocuted, we might try juggling razor blades again with a later set of thoughts about the “appointment” variety. [Read more…]

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