Commercial Real Estate Broker’s Judgment Against Property Owner Upheld Where Owner Negotiated Deal Behind Broker’s Back

In AMA v. Kaplan Realty, Inc., 2015 IL App(1st) 143600, the court looked to the common dictionary definitions of “exclusive” and “refer” as they apply to an exclusive real estate listing agreement to find that a commercial real estate broker could recover unpaid commissions from a property owner who negotiated a property sale without the broker’s knowledge.

Here is the relevant chronology: the plaintiff property owner hired the defendant broker to sell a multi-unit apartment building.  The parties signed an exclusive listing agreement running from January 2009 – January 2010 that required the owner to refer all purchase inquiries to the broker and that provided for a 5% commission on the gross sale price from any buyer during the term of the agreement.

About two months before the agreement expired, the owner started dealing directly with a prospective buyer whom the broker had earlier introduced to the owner. The owner and buyer continued to discuss the details of the purchase through the end of the contractual listing period.  Ultimately, some 18 days after the agreement expired, the owner and buyer signed a $6.75M sales contract for the parcel.  After learning of the sale, the broker recorded a lien for 5% of the sale price.

The plaintiff filed a slander of title suit (arguing that the broker lien clouded property title) and the broker filed a breach of contract counterclaim for his 5% commission.

The trial court entered summary judgment for the broker for nearly $500K and the owner appealed.

Affirming, the First District rejected the owner’s argument that since the broker “knew about” the property’s eventual buyer, the owner complied with the listing contract.  The court noted that the contract required the owner to “immediately refer” any prospect who contacted the owner for any reason and there was no exception for prospects known to the broker.

Looking to the Merriam-Webster’s College Dictionary, 11th edition (“MWCD”) “refer” means “to send or direct for treatment, air or information, or decision.”  Under this definition, the owner was obligated to send anyone who contacted the owner about the property to the broker.  MWCD, p. 1045, 11th ed. 2006.

The court also noted that the listing agreement was an exclusive one.  “Exclusive” in the listing contract context denotes “limiting or limited to possession, control or use by a single individual or group.”  MWCD, p. 436 (11th ed. 2006).  Under this definition, the court found that the subject listing agreement gave the broker the sole right to market the property – even to the exclusion of the owner.

Affirming the money judgment for the broker, the court found that the owner’s sustained pattern of excluding the broker from communications with the buyer and failing to apprise the broker of the owner’s contacts with the buyer supported the trial court’s half-million dollar judgment for the broker.

Afterword:

This case represents a straightforward application of contract interpretation principles to merit what the court believes is a fair result for the broker.  The owner’s pattern of bypassing the broker to contact the buyer directly, coupled with the fact that the purchase contract was signed so soon after the listing agreement terminated was a suspicious factor weighing in favor of upholding the money judgment against the owner.

I’m left wondering why the broker didn’t file suit to foreclose his broker’s lien.  As I’ll write in a future post, the Illinois Commercial Real Estate Broker Lien Act, 770 ILCS 15/1 et seq. (“Broker Act”), arms a commercial broker who secures a buyer (or tenant) but isn’t paid with a strong remedy.  The successful Broker Act plaintiff can recover her attorneys’ fees against the owner or buyer, whatever the case may be. 770 ILCS 15/5, 10, 15.

 

Published by

PaulP

Litigation attorney at Bielski Chapman, Ltd. representing businesses and individuals in business litigation, post-judgment enforcement, collections and real estate litigation.