Daily Development for
Thursday, October 16, 1997
by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
COMMERCIAL LEASING BROKERS; COMMISSION: After expiration of written brokerage agreement between landlord and broker, implied agency agreement entitled broker, who had originally procured a certain tenant, to the reasonable value of his services when the original lease expired and the tenant and landlord entered into new lease with limited participation of brokers, *even though new lease was for different space and at lower rent.*
Proctor v. MacDonald, 689 A.2d 1330 (N.H. 1997).
The written brokerage agreement expired in 1983, but the parties continued to do business and landlord continued to pay commissions to broker for new and renewal tenants until about 1990, The landlord then stopped paying commissions on renewal arrangements and requested tenants to deal with the landlord directly. The court found that an implied agency agreement existed between the landlord and the brokers, and that the terms of commission were the prevailing terms in the community. These terms coincided with those in the written agreement, but it is worth noting that the court did not rule that the written agreement controlled.
The landlord argued that the Statute of Frauds, which required a writing for agreements to be performed beyond the period of one year, precluded liability. The court decided that the implied agreement did not violate the Statute of Frauds, since a new broker agreement was reached each time the broker brought a new tenant to landlord. With respect to the broker's commissions for lease renewals under the judicially implied contract, the court held that the implied contract had been fully performed when the brokers initially found the tenants, and therefore it was consistent with the Statute of Frauds to conclude that the landlord was liable for later renewals.
Finally, with regard to the tenants who moved into different, smaller space, the court defined this change as a "renewal" within the meaning of the implied agreement. It was clear that the court was uncomfortable with this finding, as it indicated that the general rule is that the terms of the new lease agreement must be "substantially similar" to the old one in order to be considered a renewal. But it indicated that it felt free to define the term here for the limited purpose of identifying the implied responsibiilities of the parties without going any further.
"[Tenant] and [Landlord] wwere introduced by the borkers, and awaarding a commission based upon the continuation of this fruitful relationship comports with the terms upon which the parties had agreed in the past. We do not hold that a lease with such differing terms will constite a renewal in every case; we do hold that, under the circumstances of this case, the current lease and the original lease are sufficientally substantially similar to constitute a renewal."
Comment: The original agreement provided for a two percent commission on renewals and a two percent commission on leases of additional space. Consequently, it would have made no difference to the outcome whether or not the subsequent lease is regarded as a renewal *if the outcome had been based upon an implied continuation of the original agreement.* Instead, however, the court operated on the basis of a implied agency with no formal terms. Perhaps it was concerned that, under these circumstances, it would be dangerous to hold that a broker, by first introducing a landlord and tenant under an implied agency, becomes entitled to a commission whenever the tenant leases any additional space from the landlord. Thus, the court concluded that it was necessary to conclude that the instant rental was a "renewal." The editor agrees with the suggested concern, but points out further that the concern is also present in the outcome reached by the court here. To conclude that a lease of separate space for a separate term at a different rental is a "renewal" of a lease strains the language to the breaking point.
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