Hero Hero

SIOR Report Article

Return to SIOR Report Articles

Taking the IOU Out of I&O

Plain Speaking
By: James Hochman

In the early 1930s, Popeye the Sailor Man’s friend Wimpy famously said “I will gladly pay you Tuesday for a hamburger today.” Yes, it was the Great Depression, and times were tough, but today is different. When your client talks to you about postponing payment of a commission you have earned in favor of future business, it is time to pause, think of Wimpy, and remember that nothing good happens when payment of a real estate commission is deferred—for any claimed reason.

I recently had the pleasure of representing a large brokerage firm. My client was given the opportunity to find office space for his client’s subsidiary, and that assignment allowed my client to procure the purchase of an office building in one of Chicago’s hottest areas with the perfect vacancy for that office tenant. My oh-so-trusting client had an enforceable written buyer-rep agreement which confirmed that the buyer would pay a stated commission, and at the same time the buyer filled my client’s head and imagination with all of the future acquisitions, the growing relationship, and the future large commissions.

Many of you have heard that before. The acquisition closed—no lien waiver was requested—but no fee was forthcoming in response to my client’s invoice for roughly $250,000. Instead, my client heard the usual delaying excuses, and eventually was accused of misrepresenting the size of the building he had procured. The buyer refused to pay the invoiced fee, threatening a counterclaim for misrepresentation. In-house counsel communicated and negotiated with “Wimpy,” to no avail. Meanwhile—surprise—no future business and no new assignments.

A new in-house counsel inherited the file, gave the broker’s tale of woe a friendly ear, and I was hired to evaluate both the commission claim and the threatened counterclaim. The facts were compelling. Our broker merely relayed the building size that he received from the seller’s broker (therefore not actionable under our license law); and in fact our broker provided the buyer with rent roll, copies of all leases, survey, and floor plans, all during the period between execution of the letter of intent and execution of the purchase and sale agreement. In other words, there was no way that this buyer could reasonably have relied on the broker’s initial statement of the size of the building. I opined that the principal commission claim would succeed. We then filed suit, Wimpy counterclaimed, and we successfully moved for dismissal of the counterclaim.

After some back and forth, lo and behold, Wimpy’s counsel asked if we had any interest in mediating the commission claim, which is always a good sign. We chose a mediator (a no-nonsense sitting judge known for telling it like it is); and we began one and then a second session of mediation. Surprise, surprise, the case settled for an amount far higher than Wimpy had ever offered before, and was in fact pretty close to the original commission amount. The beauty of a settlement is that funds are wired and collected, so you don’t have to chase down a defendant to levy on a judgment.

So, this quarter’s lesson is that good clients pay what they promise to pay. When you hear about future business, make sure that such promises are not in lieu of prompt payment for work already performed. Additionally, when your client is buying or leasing property—and that property is located in one of the 34 broker lien states—offering a lien waiver at closing in exchange for commission is a good idea. It triggers the requirement for payment of the invoiced commission, backed by the threat of a title exception for the broker’s lien rights if payment is not made at closing.

One other thing we learned while preparing our case and preparing for the mediation: Wimpy had done the very same thing to another broker in another state. Wimpy cried foul then, got sued, defended, then mediated, then settled. You could almost say there is a pattern. Brokers are wonderful hard-working professionals who deserve to be paid for their efforts. Brokers are not and should never be lenders. Wimpy, I would love to serve you a hamburger today—for payment today.

 

Media Contact
Alexis Fermanis SIOR Director of Communications
James Hochman
James Hochman
Schain Banks Kenny & Schwartz
jhochman@schainbanks.com

Jim Hochman is a partner at Schain Banks Kenny & Schwartz law firm and freelance writer. Contact him at jhochman@scheinbanks.com.