Commercial Listing Contracts:  Risky Business

Commercial Listing Contracts: Risky Business

When someone decides to sell commercial real estate, he or she will often hire a licensed real estate broker to assist in the process. A licensed real estate broker will require that the property owner sign the form WB-5 Commercial Listing Contract – Exclusive Right to Sell (the “Listing Contract”). This is a document approved for use by the Wisconsin Department of Regulation and Licensing as the primary contract between the broker and the property owner with respect to the listing and eventual sale of the property and the payment of the broker’s commission.

The Listing Contract is a standardized form with several blanks that are filled in by the broker prior to signing. Due to the standardized nature of the form, most people do not seek legal counsel prior to entering into the Listing Contract. However, the Listing Contract may contain terms that are unfavorable to the seller, particularly with respect to when the seller is required to pay the broker’s commission.

The standard Listing Contract has many provisions that you would expect with respect to when the broker’s commission is earned. For example, the commission is due when the property is sold, exchanged, or an option to purchase the property is granted and subsequently exercised. Unfortunately, the Listing Contract also contains what might be some unexpected terms regarding when the seller must pay the broker’s commission. For example, the Listing Contract also provides that the commission becomes due in the event: (i) a transfer occurs which causes an effective change in ownership or control of all or any part of the property; or (ii) a buyer is procured for the property at no less than the price and terms described in the Listing Contract even if seller does not accept the offer or the transaction does not close.

Based on the above language, if the seller dies during the term of the Listing Contract and the seller’s ownership interest in the property is transferred to the seller’s heirs, the broker’s commission is due under the Listing Contract. Likewise, if the seller accepts an offer to purchase the property and the potential buyer is unable to obtain financing and the transaction never closes, the broker’s commission is still due. If you think a broker would never attempt to collect a commission under these circumstances, think again.

In Ash Park, LLC v. Alexander & Bishop, Ltd., 363 Wis. 2d 699 (2015), the Wisconsin Supreme Court recently enforced the terms of a Listing Contract against the property owner and required the payment of the broker’s commission in a similar situation. Ash Park involved a seller that contracted with a broker to sell vacant land. An offer to purchase was signed, but the buyer was unable to obtain financing and the transaction never closed through no fault of the seller. The broker subsequently sued the property owner for payment of the broker’s commission even though the transaction never closed. The Court determined that there was an enforceable contract and the commission was due and payable to the broker.

The result in Ash Park should be a lesson to property owners who are considering hiring a licensed real estate broker to sell their property. This is just one example of potential unintended consequences for a seller when the terms of the Listing Contract are not clearly understood and negotiated. Potential sellers should consider having legal counsel review any proposed Listing Contract for the sale of their property prior to entering into this type of agreement.

Landlord/Tenant Law has Significant Changes

Landlord/Tenant Law has Significant Changes

A new law passed earlier this year made several changes to Chapter 704 of the Wisconsin Statutes that impact the rights of residential landlords and tenants. The following is a brief summary of some of the most significant changes:

1. Disposing of Tenant’s Personal Property. Absent a written agreement to the contrary, a landlord may now presume that any property left behind by the tenant has been abandoned and may dispose of such property as the landlord deems appropriate (including by private or public sale). For this provision to apply, the landlord must provide the tenant with written notice prior executing the lease that landlord does not intend to store the tenant’s property.

2. Disclosures by Landlords. Landlords are now required to disclose to prospective tenants any building or housing code violations that the landlord is aware of that affect the lease space, or are a significant threat to health or safety and have not been corrected. This disclosure must be made prior to the execution of a lease or acceptance of any money by landlord.

3. Check-In Procedures. For all new tenants (not renewals) landlords must provide a standardized check-in sheet to the tenant with an itemized description of the condition of the premises at the time of check-in. The tenant has seven days to complete the check-in sheet and return it to the landlord.

4. Damages for Failure to Vacate. If a tenant remains in possession of the premises beyond the end of the lease term without the landlord’s consent, then the landlord is entitled to damages of at least twice the rental value for the space apportioned on a daily basis.

5. Security Deposit Requirements. If a landlord wants to have the ability to withhold any portion of the tenant’s security deposit for any reason other than those specifically stated in the statute, then those additional items must be contained in a separate document titled “NONSTANDARD RENTAL PROVISIONS” and signed by the tenant. The landlord must also discuss each of the additional items with the tenant.

6. Potential Remedies for Tenants. In what might be the most significant change, the new law also provides that a violation of Chapter 704 of Wisconsin Statutes “may also constitute unfair methods of competition or unfair trade practices under Wis. Stat. § 100.20. The effect of this language is to allow the tenant to seek the remedies available under Wis. Stat. § 100.20, which include double damages and the recovery of attorneys’ fees.

Landlords should review their form residential leases to ensure that they are in compliance with the new law. In addition, some aspects of the new law also apply to commercial landlords and tenants. The real estate attorneys at Anderson O’Brien can answer any questions you may have about the new law and how it may apply to your lease agreement.

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