A Missouri court has considered whether a broker could collect a commission from a commercial lease transaction when the parties had agreed to a lease but had not fixed the monthly base rent.
In 1998, DeBruce Grain, Inc. (“Tenant”) entered into a ten-year lease with Briarcliff Development Company (“Landlord”) for office space. The lease contained a renewal option, but the Tenant did not exercise the renewal option and instead hired the real estate brokerage firm Wally & Co. (“Brokerage”) to assist the Tenant in its search for office space.
The Brokerage sent the Landlord a proposal for renewing the Tenant’s lease and also a letter outlining the terms of the Brokerage’s commission if the lease was signed (“Agreement”). The Landlord signed the Agreement on October 8th. The Agreement would require the Landlord to pay the Brokerage a commission if the Tenant entered into a lease with the Landlord, with the entire commission amount due by the commencement of the lease. The Agreement remained in effect for 240 days (i.e., June 9, 2009) or until negotiations ended, whichever was longer.
On December 1st, the Brokerage helped the parties negotiate a ten-year lease extension, commencing when the prior lease expired in May 2009. While the new lease did not establish a base rent amount, the lease instead had a process where the parties would engage in a series of steps that would create a base rent, including an arbitration mechanism if the parties could not reach agreement on their own. Eventually, the process yielded a base rent amount and the parties signed a written agreement establishing the rent amount on July 31, 2009.
Following the setting of the base rent, the Brokerage sought payment of its commission from the Landlord. The Landlord refused to pay the commission, arguing that the agreement setting the commission was outside of the 240 days set forth in the Agreement and so the Brokerage did not have a right to the commission. The Brokerage filed a lawsuit, and the trial court ruled in favor of the Landlord. The Brokerage appealed.
The Missouri Court of Appeals, Western District, reversed the lower court and sent the case back to the trial court with instructions to enter judgment in favor of the Brokerage. The question before the court was when did the Brokerage earn its commission. The Brokerage argued that the parties entered into the lease on December 1st, and so that is when its right to a commission was triggered. The Landlord asserted that the trial court had properly concluded that the lease was not final until July and so the Brokerage had no right to a commission.
The court ruled that the Brokerage had earned its commission when the parties entered into the lease renewal agreement and so the Brokerage was entitled to receive its commission. Looking at earlier cases, the court found that the general rule (unless the contract states otherwise) is that a real estate professional earns its commission at the time of contracting, not when the sale closes or some other contingency is later satisfied.
The Brokerage had produced a ready, willing, and able tenant, and so it was entitled to its commission at the time lease renewal agreement was executed by the parties. The lease renewal agreement executed in December unconditionally extended the lease, and the parties were also unconditionally bound by the process established in the lease renewal to set the base rent amount. Thus, the court reversed the lower court and sent the case back to the trial court with instructions to enter judgment in favor of the Brokerage.
Wally & Co., L.C. v. Briarcliff Dev. Co., 371 S.W.3d 880 (Mo. Ct. App. 2012).