Every now and then REALTORS® are faced with a tough decision when their client cancels the listing or cancels the purchase contract − extend grace and hope to preserve the relationship with the client or demand payment for their commission.
Because listing contracts are drafted by REALTORS® and their attorneys, most contain a liquidated damages clause that requires the seller to pay the full commission if the seller: (1) cancels the listing; (2) cancels the purchase contract; or (3) allows the property to foreclose.
The Arizona Court of Appeals recently upheld such liquidated damages clauses in Focus Point Properties, LLC v. Cleo Johnson, 1 CA-CD 12-0766 (June 2014). In Cleo, the seller signed a listing contract with Focus Point Properties, LLC and its Broker (collectively, the “Broker”) for a one-year listing with a liquidated damages clause. Specifically, the listing contract provided that “The same amount of sale or rental commission shall be due and payable to broker, if without the consent of broker, the premises is withdrawn from this listing, or otherwise withdrawn from sale or rental or rented, transferred, or conveyed by owner.” The listing contract further provided that “If completion of a sale or rental is prevented by default of owner, or with the consent of owner, the entire sale or rental commission as appropriate shall be paid to broker by owner.”
About six months into the listing, the seller canceled the listing. The Broker then sent the seller a demand for $140,000.00 based on the above liquidated damages clause. The seller refused to pay the commission, and the Broker filed a lawsuit for breach of contract and other claims. The seller counterclaimed for fraudulent misrepresentation, negligent misrepresentation, breach of fiduciary duty, and damages under Arizona vulnerable adult statute.
The case ultimately proceeded to trial and the jury found in favor of the Broker and awarded the full commission, attorney fees, and punitive damages.
The seller appealed the decision and argued that the Broker lacked standing because the Broker was not a “qualified” licensee pursuant to A.R.S. §32-3152(A) due to multiple DUI convictions that took place prior to the cancellation of the listing. The seller essentially argued that even though the Broker’s real estate license was technically active at the time of the listing, the Broker’s license should have been suspended or revoked due to the DUI convictions.
The Court of Appeals, however, disagreed and upheld the $140,000.00 commission. The Court reasoned that, pursuant to A.R.S.§32-3152(A), in order to be a “qualified” real estate licensee, the salesperson must only prove that he or she had an active license at the time of the listing.
The Court of Appeals also upheld the award of attorneys’ fees to the Broker pursuant to the listing agreement’s attorney fee provision and awarded the Broker attorneys’ fees incurred regarding the appeal.
Knowing when to turn the other cheek and preserve the relationship and when to stand your ground and demand a commission is often a difficult decision. But following Focus Point Properties v. Cleo Johnson and the Court’s approval of listing agreements’ liquidated damages clauses, REALTORS® may find peace of mind knowing that they have strong remedies available to them if their client cancels a listing or backs out of a purchase contract.
If you or someone you know has questions regarding a commission dispute or any other real estate matter, call or email Mr. Charles today to schedule an appointment today.
Christopher Charles is a State Bar certified real estate specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS® (the “AAR”). He is a Partner with the law firm Titus Brueckner & Levine PLC. Christopher is also an Arbitrator and Mediator for the AAR regarding real estate disputes; he serves on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions.
Christopher is a licensed real estate instructor and he teaches continuing education classes at the Arizona School of Real Estate and Business. For a list of upcoming speaking engagements, please visit www.tbl-law.com. Christopher can be reached at ccharles@tbl-law..com or at 480-483-9600.
 The listing contract called for a 4% commission on the list price of $3.5 million.
 The punitive damages claim was ultimately set aside because punitive damages are not recoverable in breach of contract claims.
 Notably, the statute of limitations for a breach of contract claim is six years – so fortunately these tough decisions don’t always have to be made right away.