In a dispute over a nearly $150,000 commission, the Florida Supreme Court has held that it is not contrary to Florida public policy for the government to pay a contingent fee for services. The ruling makes the Florida real estate market safe for brokers to continue working on a commission basis with government entities selling or leasing property.
The court also held that even though a buyer was already aware of a property when two brokers approached the buyer about a potential purchase, because the brokers introduced the buyer and seller and negotiated the sale, the brokers were indeed the procuring cause of the later sale.
The dispute In Rotemi Realty Inc. v. Act Realty Co. Inc. arose when a broker, Maria Martin-Hidalgo, met with the Miami-Dade County School District to offer its real estate director a property for purchase. Eventually, the director decided the district wanted to purchase two other tracts of land, one of which was owned by Act Realty.
Martin-Hidalgo teamed with another broker, Jose Perez-Urritia from Rotemi Realty, to approach Act Realty’s broker, who later signed an agreement to pay the brokers a commission “equal to the amount of sales proceeds due the owner at closing that is over $1 million” upon closing of the sale of its land to the school district.
The school district closed on the purchase of both tracts of land, but when it came time for Act Realty to pay the $144,650 commission, it balked, claiming no commission was due. First, it argued the brokers were not the procuring cause of the sale because the school district was already aware of Act Realty’s property when approached by the brokers.
Second, Act Realty claimed it was against Florida public policy for the government to pay a contingent fee for services. According to Act Realty, the use of a contingent fee in sales and leases involving the government could encourage brokers to increase the price of property to secure a higher commission for themselves, all at the expense of Florida taxpayers.
The trial court rejected Act Realty’s arguments, awarding the brokers the entire commission. The appellate court, however, sided with Act Realty, finding the fee arrangement created a situation in which the brokers could use “sinister and corrupt means” to convince the Miami-Dade School District to purchase and pay the highest price possible for the property. It also held that the commission must be returned to the Miami-Dade School District to avoid creating a windfall to Act Realty of the nearly $150,000 in disputed commission.
But the Florida Supreme Court reversed the appellate court’s ruling, handing the brokers a total victory. It held the brokers were the procuring cause of the sale, even though “nobody disputed that the purchaser had already been introduced to the property,” says Hank Sorensen, an attorney with Brokers Legal Group P.A., in Palm Harbor, Fla., who filed a friend of the court brief on behalf of Cres Commercial Real Estate in which he argued the brokers were entitled to the commission. “But the court found that the people who got the school district and Act Realty together and who initiated the negotiations were the brokers, so they were the procuring cause.”
The court also held that the commission arrangement did not violate public policy because there was no evidence the brokers used improper or illegal means to influence the school district to pay a higher price for the property. According to Sorensen, real estate commissions for the sale or lease of property involving Florida government agencies can still be voided, “but only if it can be proved there was fraud or improper reaching,” he says.
The Florida Supreme Court appears to have been keenly aware that invalidating all commission agreements when property sales or leases involve government entities would rock the Florida real estate business. According to Sorensen, during oral argument before the court, “one justice asked, ‘What if there are multiple lots, all in a row, and all the owners want to sell to the government, but a middle lot has been listed through Coldwell Banker? What do we tell Coldwell Banker, that it’s not entitled to receive a commission on the sale?'”
And in its opinion, in what may be an extreme case of judicial understatement, the court noted: “The repercussions for the real estate industry from a holding that such contracts suddenly violate public policy as applied to purchases (and, by extension, sales) by government agencies would be unpredictable.”
Act Realty’s lawyer, Manny Alvarez of Gonzalez and Alvarez, P.A. in Miami Lakes, Fla., says while he disagrees with the court’s decision on whether the commission agreement violated public policy, he most disputes the court’s conclusion that the brokers were the procuring cause of the sale.
Alvarez claims the evidence showed that the brokers, through inside contacts with the school district, knew the district had decided to purchase Act Realty’s property before they approached Act Realty for the listing. “The day after the school district ordered an appraisal to determine what to offer my client for the property,” he argues, “the brokers interjected themselves in the process by showing up on my client’s doorstep and saying, ‘We think we can get the school board interested in your property,'” he claims. “They didn’t say, ‘We think the school district’s going to buy your property, let us help you get a better price.'”
That alleged deception, he believes, proves the brokers weren’t actually the procuring cause and is the basis for a motion for rehearing he has filed on Act Realty’s behalf with the Florida Supreme Court.
The motion is pending.
G.M. Filisko wrote about the real estate market before becoming an attorney. She has nearly 20 years combined experience in real estate and law.
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