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Legal Alert: Commissions

RealPro, Inc. v. Smith Residual Co.; Fourth Dist. February 28, 2012

Smith Residual Co. (the Sellers) owned 46.8 acres of vacant land in Riverside County, CA. They retained MGR Services, Inc, a real estate broker, as their exclusive agent for the sale of the property. On September 21, 2005, the sellers entered into a standard listing agreement with MGR.

The Listing Agreement was for a term of September 21, 2005 to April 1, 2006. The list price was $17 million cash or for such other price and terms acceptable to the owner. The contract included additional standard terms similar to those contained in the “Standard Offer Agreement and Escrow Instructions for the Purchase of Real Estate,” published by the AIR Commercial Real Estate Association (AIR).

MGR was authorized to list the property in the appropriate local commercial multiple listing services and at MGR’s election, in cooperation with other real estate brokers.

On November 21, 2005, RealPro, Inc., a real estate broker, contacted MGR about the property. The next day, RealPro submitted a written cash offer for the full listing price. The offer stated “the buyer was ready, willing and able to purchase the Property…on all material terms contained in the LOOPNET listing as represented by MGR to be in the Listing Agreement.”

On December 22, 2005, MGR acknowledged it had received the offer and would accept subject to a counter offer, increasing the price to $19.5 Million. The additional terms of the offer were acceptable to the Seller. Both MGR and Sellers confirmed in writing the brokerage fee of 4 percent split 50/50 between RealPro and MGR.

On March 16, 2006, RealPro, as third party beneficiary of the Listing Agreement (Cooperative Broker), demanded its 2 percent brokerage fee, along with copies of the Listing Agreement and amendments. When Sellers refused to pay, RealPro filed a complaint. Although a copy of the Listing Agreement was attached to the complaint, RealPro did not attach a copy of the offer or counteroffer.

Sellers demurred (objected) to the complaint and RealPro filed a first amended complaint (FAC), but still did not attach copies of the offer or counteroffer.

RealPro’s complaint stated allegations of (1) declaratory relief, (2) breach of contract, (3) breach of the implied covenant of good faith and fair dealing.

Seller’s demurrer argued that (1) declaratory relief applies to future actions, (2) RealPro failed to provide the offer and counteroffer, which contradict the allegations of the FAC and (3) requisite conditions were not met (i.e., $17 Million cash or for such other price and terms acceptable to the owner, and escrow must close prior to payment of any commissions.)

The trial court sustained the demurrer without leave to amend (agreed with the seller’s objection, and dismissed RealPro’s claim without the ability to refile). RealPro filed an appeal.

The appellate court affirmed the judgment of the trial court and found:

(1) The presentation of a $17 Million cash offer did not obligate the Sellers to enter into a purchase and sales agreement; rather, it was merely an offer to purchase the Property for $17 Million plus terms acceptable to Sellers.

(2) The Listing Agreement in paragraph 5.2 (b) authorizes payment of commissions at close of escrow.

(3) The Sellers recover all their costs on appeal.



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