Daily Development for Wednesday, November 19, 2003 by: Patrick A. Randolph, Jr. Elmer F. Pierson Professor of Law UMKC School of Law Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri dirt@umkc.edu BROKERS; COMMISSION; PUBLIC AGENCY PURCHASERS: A listing agreement that provides for a net commission contingent upon broker's being able to sell property to a public agency is void and unenforceable as against public policy. Act Realty, Co., Inc. v. Rotemi Realty, Inc., 2003 WL 21976079 (Fla. 3d DCA 2003) The owner of a 10 acre parcel in the middle of a 50 acre parcel owned by another party entered into an agreement with a broker that provided for a commission only if the brokers could sell the property to the Miami- Dade School Board. Compensation would be equal to the amount of the sale proceeds at closing over $1 million. The broker delivered the deal selling the property at $1,164,650.50, earning themselves a commission of $164,650.50. The Record reflects that the commission amount was held in escrow though there was a $20,000 withdrawal to pay a lobbyist who facilitated the sale. To determine if a contract is against public policy the court will determine whether "the contract has a tendency toward [the] evil [of promoting] . . . the temptation to use improper means to gain success." The court reaffirmed its earlier decisions regarding contracts that provide for contingency awards for securing public monies, among other things, have been found to be void as against public policy because such agreements "suggest the use of sinister and corrupt means for the accomplishment of the ends desired." City of Hialeah Gardens, 599 So.2d at 1323 (quoting Wechsler v. Novak, 157 Fla. 703, 26 So.2d 884, 885 (1946)). The court held that the Commission Agreement certainly contained a potential for "sinister and corrupt means," because the broker was to use influence to get the school board to purchase the property and an incentive for the brokers to get the school board to pay the highest amount possible above $1 million to enhance their contingent broker fee. The court held that the Commission Agreement was against public policy and remanded the case to the trial court with orders to return the escrowed funds to the School Board. A strong dissenter argued that the court had misconstrued Florida law and the realities of this case. It noted that a controlling Florida Supreme Court precedent had stated that not all contracts that were contingent upon the obtaining of public funding were void as against public policy. This characteristic was a factor to be taken into account, but "[i]t must be shown that [the public agency's participation] was induced by favors or corrupt means." This, of course, is quite different from the aproach taken by the majority. The dissent dismisses the majority's principle precedent authority as a dicta in a lower appeals court decision. The dissent then goes on the analyze the transaction to show that there was a reasonable explanation for the way in which this commission agreement was phrased, and argues that it would be rash to conclude that the contract necessarily contemplated sinister behavior. Comment 1: The case is brief, and worth reading, since the two opinions are really quite contradictory in their analysis and philosophy. Comment 2: It is very difficult to discern whether the evil perceived in the majority opinion would be present in any listing agreement contemplating sale to a public agency. Virtually all brokerage agreements are contingent. Although this was also an example of the notorious "net listing" agreement, the court focuses on the contingent nature of the contract more than on the net listing. In any event, net listings have a tendency to be unfair to the seller more than to the buyer. It is true that this contract dealt exclusively with a potential sale to the school district. But is this critical? If the parties contemplate a public agency even as only a potential buyer, don't all the same policies apply? Because of these uncertainties, the editor would expect that the local NAR group ought to be seeking further clarification. Comment 3: Note that neither opinion does anything with the $20,000 leaked from the commission escrow to the lobbyist. Isn't this a commission sharing with an unlicensed person - which is almost always a breach of real estate regulations?? Readers are encouraged to respond to or criticize this posting. Items reported on DIRT and in the ABA publications related to it are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. 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