Daily Development for Tuesday, February 5, 2002

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

BROKERS; COMMISSIONS; ASSIGNMENT TO UNLICENSED BROKER. A real estate sales person can bring an action against a commercial landlord to recover commission if there was a valid assignment of the right to such commission from a licensed broker.

Ritchie v. Weston, Inc., 757 N.E.2d 835 (Ohio App. 8 Dist. 2001).

In 1987, Ritchie, a real estate agent (but not a licensed broker) was an employee of the firm of Grubb & Ellis, which represented Weston, an owner of a commercial building in an industrial park. While working with Grubb & Ellis, Ritchie was able to procure a commercial tenant, AUS, for Weston's building.

Weston and Grubb & Ellis agreed that Grubb & Ellis would receive a commission based upon a fixed percentage of the lease amount. The lease provided for an original four-year term, two three-year renewals (going through 1996), and one five-year renewal (beginning in 1997) at a rate to have been determined by the parties.

In 1995, Ritchie left Grubb & Ellis to work for a different firm. The separation agreement between Ritchie and Grubb & Ellis stated that Ritchie would be entitled to commissions that arose from transactions in which he was originally involved as a sales person, including lease renewals. In 1996, Ritchie represented AUS in connection with AUS's desire to purchase Weston's building. Ritchie notified Weston of his representation of AUS. The purchase discussions were not productive and thereafter Ritchie represented AUS in negotiating the 1997 5-year renewal. At this point, Weston objected to Ritchie's involvement and Ritchie withdrew from the negotiations.

AUS went on to renew the lease and Ritchie requested his percentage of the lease as a fee owed from his prior agreement with Grubb & Ellis. Weston refused to pay the commission on grounds unrelated to this aspect of the case. Grubb & Ellis, which did a substantial amount of business with Weston, did not wish to pursue the commission claim. But, as it was obligated by contract to give the commissions to Ritchie, it assigned the commission claim to Ritchie, and Ritchie filed suit.

The Common Pleas Court entered judgment for Ritchie. Weston appealed the decision claiming that the Common Pleas Court misinterpreted the Ohio statute (R.C. 4735.21) which states "No right of action shall accrue to any person, partnership, association, or corporation for the collection of compensation for the performance of the acts mentioned in section 4735.01 of the Revised Code, without alleging and proving that such person, partnership, association, or corporation was licensed as a real estate broker or foreign real estate dealer."

The Appeals Court agreed with Weston that an unlicensed broker would not be entitled to commission. The question for the Appeals Court, however, was whether Ritchie could step into the shoes of Grubb & Ellis (a licensed broker) by virtue of the separation agreement between Ritchie and Grubb & Ellis. The Appeals Court found that Ritchie could step into the shoes of Grubb & Ellis and therefore could bring a claim for the commission owed. In analyzing the language of the statute, the Appeals Court focused on the phrase "no right of action shall accrue." The court found that the accrual date in this case was the date upon which the commission arose, i.e. when Grubb & Ellis earned the commission in 1987. As assignee of those rights under the aforementioned separation agreement, Ritchie stands in the shoes of the assignor (Grubb & Ellis) and succeeded to all the rights and remedies, including the right to bring the cause of action as Grubb & Ellis, for commission owed.

A dissenter argued that Ritchie's suit should have been in the name of Grubb and Ellis, and not in his own name. The Ohio statutes prohibit an unlicensed party from bringing a claim for compensation for brokerage services. Hence, the dissent reasoned the only possible legal claim was that of Grubb and Ellis, and the action should have been styled as such.

Comment 1: The dissent does have a point. In many cases, this might be a mere technicality. Here, however, Grubb and Ellis did not wish to be associated with the claim. Had it been brought in Grubb and Ellis' name, that firm might have dealt with Ritchie's claim to the commission differently. So the distinction here had meaning.

Comment 2: The substantive issue is whether the policy of the state ought to be that, although a licensed broker could assign its commission rights to parties generally, should it be permitted to assign to parties who have provided services connected to the earning of the commission?

If the assignment is made after the commission is earned, then presumably there is no harm. The broker has earned the commission, and assigning it for collection does no damage to the professional function of the broker. The court appeared to take that view here.

But in this case, the commission in fact was not "triggered" until the lease was renewed. And more had to be done to bring that result about. In fact, Ritchie was actively involved in bringing about the renewal for a while. If there is something wrong with a party not licensed as a broker having the right to collect a commission, shouldn't that concern operate here as well? The editor is uncertain on this one, and welcomes advice.

Comment 3: There is no mention in this case of a prohibition on sharing commissions with unlicensed parties. Is that not a rule in Ohio? If it is, how is it avoided here?

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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