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.