Want to get paid? Get it in writing!

Real estate licensees know that when it comes to selling real estate it’s location, location, location.  Unfortunately, some Realtors® learn expensive lessons when they forget that in order to be paid is to “get it in writing, get it in writing, get it in writing.”

The recent Superior Court of Pennsylvania case of Michael Salove Company v. Enrico Partners illustrates how the failure to get all material terms of a listing agreement in writing can be an expensive mistake.

In Michael Salove Co., the real estate brokerage entered into a six month written exclusive listing agreement for the lease of commercial real estate owned by the landlord. At the end of the listing term, the brokerage had not procured a tenant for the commercial building.  According to the listing broker, he had discussions with the landlord that culminated in a verbal extension for an indefinite period.  With involvement of the listing broker, a potential tenant was introduced to the property. A few months later, without the listing broker’s involvement, the tenant leased the property.

After the landlord refused to pay the listing broker a commission, the real estate brokerage firm filed a commercial broker’s lien against the landlord and subsequently filed a complaint alleging breach of contract.   The brokerage maintained that the landlord had agreed to an oral extension of an exclusive right to lease commercial property contract and that a commission was due under the terms of the original writing.  The landlord denied the existence of the verbal extension and alleged that even if one existed, the brokerage’s claim was barred by the Pennsylvania Real Estate Licensing and Registration Act (RELRA). The brokerage could not produce any writing, including emails, memorializing the alleged extension. The trial court granted summary judgment in favor of the landlord.

On appeal, the Pennsylvania Superior Court affirmed the trial court’s ruling. The court held that even assuming the existence of the verbal extension, the brokerage was prohibited from collecting a commission under RELRA.   The court explained that RELRA requires that all material terms of a real estate licensee’s contract must be in writing. Since the duration of the listing agreement is a material term, any extension of the same must be in writing. Accordingly, the brokerage’s failure to comply with RELRA barred its claim for a commission under the original written but expired agreement.  To add insult to injury, the Superior Court held that the real estate brokerage must pay the attorney fees of the landlord in connection with the filing of the commercial broker lien!

The Superior Court was careful to limit its holding to verbal modification agreements to terms required to be in writing under RELRA. Therefore, the court left open that some terms of a written agreement that are not required to be in writing by RELRA could be verbally modified. Nonetheless, the Superior Court taught an expensive lesson. When it comes to getting paid, get all material terms in writing. A simple one sentence written agreement extending a listing contract would have made a huge difference. Of course, make sure those extensions are for a definite period of time. While the court did not need to reach the issue, “an indefinite extension” of an exclusive listing agreement is a violation of RELRA’s prohibition against exclusive listing agreements exceeding one year.