Metro Properties, Inc. v. Yatsko: No Commission When Right of First Refusal is Exercised
Rhode Island's highest court has ruled that a commercial real estate broker was not entitled to a commission after a tenant exercised its "right of first refusal" and purchased the premises, despite the fact that the broker had helped secure the offer which triggered the tenant's option to purchase.
Keyes Development Corporation ("Owner") owned a commercial building which had Cox Communications, Inc., ("Tenant") as a tenant. As part of its lease with the Owner, the Tenant held a right of first refusal to purchase the property for the same price as any prospective purchaser brought forth by the Owner. In 1995, the Owner was working with Salisbury Agency ("Seller's Representative") to sell the property. Regina Joly Maxwell, a real estate salesperson, of Metro Properties, Inc. ("Metro") brought an interested purchaser to the Seller's Representative, and the prospective purchaser made an offer to the Owner. The offer stated that Metro and the Seller's Representative would split the commission amount paid upon sale, and that the offer was subject to several conditions, including the Tenant's right of first refusal. The Tenant exercised its right of first refusal and purchased the premises. The Seller's Representative refused to pay Metro any of the commission it received upon the sale of the property.
Metro filed a "Request to Arbitrate" with the Rhode Island Association of REALTORS® ("Association"), but the Association's grievance committee determined that the dispute was nonarbitrable because Metro had no contractual relationship with any of the parties. Metro then filed a lawsuit seeking payment of the commission by the Seller's Representative. The Seller's Representative filed a counterclaim seeking payment of his attorney fees, based on a provision in the arbitration form filed by Metro. The trial court rejected Metro's allegations and ruled in favor of the Seller's Representative. The trial court also awarded the Seller's Representative attorney's fees, and Metro appealed.
The Supreme Court of Rhode Island affirmed the rulings in favor of the Seller's Representative but reversed the trial court's award of attorney's fees to the Seller's Representative. The court first considered whether Metro could bring a commission lawsuit. As in many states, Rhode Island law requires that a commission agreement be in writing and signed by the party who is charged with paying the commission in order for a party to bring a commission lawsuit. Metro argued that even though it did not have a written commission agreement, it could still bring a commission lawsuit because the law is designed to protect members of the public and not another commercial real estate broker like the Seller's Representative. The court rejected this argument, stating that the statute made no such exception for commercial brokers and so ruled that Metro's commission lawsuit was barred by Rhode Island law.
The court then considered whether Metro would be entitled to a commission if the court ignored the fact that Metro's commission lawsuit was barred by Rhode Island law. To claim the commission, Rhode Island law requires Metro to demonstrate that it was the "primary, proximate, and procuring cause" in the sale of the property to the Tenant. Looking at the facts, the court ruled that Metro would not be entitled to share in the commission since it was not the procuring cause of the sale because the Tenant elected to exercise its right of first of refusal and so the purchaser was not the buyer procured by Metro.
Next, the court examined the offer to purchase to see if that document entitled Metro to a commission. Looking at that document, the court found that Metro was only entitled to a commission if several conditions were met, one of which was that the Tenant did not exercise its right of first refusal. Since the conditions of the offer were not met, the court ruled that the offer did not entitle Metro to a commission.
Finally, the court considered whether the Seller's Representative was entitled to attorney's fees, based on the arbitration request filed by Metro with the Association. The arbitration request form used by the Association stated that if a party to the arbitration does not comply with the arbitration award and the other party is forced to go to court to enforce the award, then the enforcing party is entitled to attorney's fees and the costs for bringing the lawsuit. The trial court had awarded the Seller's Representative attorney's fees based on this language. The court reversed the trial court's award of attorney's fees, stating that Association had determined that the dispute was nonarbitrable and thus this provision was inapplicable to Metro's lawsuit, since an arbitration had never occurred. Thus, the court affirmed the trial court's rulings that Metro was not entitled to a commission but reversed the award of attorney's fees to the Seller's Representative.
Metro Properties, Inc. v. Yatsko, 763 A.2d 617 (R.I. 2000).