Broker Listing Agreement That References Retained Deposits Construed By Florida Appellate Court As “Fund” From Which Broker Fees Should Have Been Paid

In addition to general language regarding the amount of fees owed to a listing broker, and when those fees should be paid, listing brokers should also consider including language that requires the owner of the subject property to pay the fees from any “fund” that might exist as a result of the structure of the underlying deal.  For example, if a developer is taking deposits on condominium units and the broker is entitled to the payment of fees based upon the value of the deposits in the event one or more buyers fail to close on their purchases, the broker should include language in the listing agreement that the deposits constitute a fund from which the broker must be paid.

This situation occurred in a recent case considered by Florida’s Third District Court of Appeal.  See Plaza Tower Realty Group, LLC v. 300 South Duval Associates, LLC, — So. 3d. —, 42 Fla. L. Weekly D1172a, 2017 WL 2265368 (Fla. 3d DCA May 24, 2017).  The underlying condominium project was constructed around the time of the real estate market crash.  As a result, 79 of the 100 contracted purchasers failed to close and the developer became entitled to retain the defaulting purchasers’ deposits.  The broker demanded payment in accordance with its listing agreement for one-third of the value of the retained deposits.  The developer refused and caused the escrow agent to release the funds to the project’s lenders.

The listing agreement included the following language, which the Third District Court of Appeal construed to mean that the deposits constituted a “fund” from which the developer was required to pay the broker’s fees:

7.  Compensation.  As compensation for all services to be rendered to Owner by Broker during the term of this Agreement, Owner and Broker agree that, subject to the terms hereinafter set forth, Broker shall be deemed to have earned and be entitled to receive sales commissions only in accordance with the following:

….

(e) Anything contrary herein notwithstanding, Broker shall not be entitled to any commission whatsoever as to the sale of a Unit which fails to close for any reason whatsoever, including, without limitation, the default of Owner, provided, however, that in the event that a contract is cancelled and/or a sale fails to close for any reason whatsoever, and Owner retains the purchaser’s deposits in connection therewith, then, in such event, Broker shall be paid a commission equal to one third of the amount of the retained deposits less all collections expenses, but not to exceed the full commission Broker would have earned had the defaulting buyer closed on his purchase contract….

….

(g) From the date when at least sixty percent (60%) of the Units have satisfied the Eligibility Requirement (the “Threshold Date”), Owner shall pay Broker, as an advance, fifteen percent (15%) of the commissions which Broker is eligible to receive. These advance commission payments shall also be retroactively applicable to all Units that met the Eligibility Requirements prior to the Threshold Date. All commission advances paid to Broker shall be offset against final commission’s payable to Broker from Unit closings or from retained deposits pursuant to paragraph 7(e) above….

Id. at *1 (bold emphasis original).  Thus, the court construed the language “from retained deposits” to mean that the deposit amounts constituted a “fund” from which the broker should have been paid:

The resolution of the issue before this Court is controlled by paragraphs 7(e) and 7(g) of the listing agreement. Paragraph 7(e) sets forth when the Broker is entitled to receive a commission for units that fail to close, and provides the method for calculating the Broker’s commission on those units. Although the calculation of the Broker’s commission is based, in part, on the amount of the retained deposits—“Broker shall be paid a commission equal to one third of the amount of the retained deposits less all collections expenses, but not to exceed the full commission Broker would have earned” (emphasis added)—paragraph 7(e) does not provide that the Broker’s commission is to be paid from the retained deposits. Therefore, standing alone, paragraph 7(e) does not identify a particular fund for the payment of commissions due to the Broker for units that failed to close. However, paragraph 7(g) of the listing agreement reflects that any unpaid commissions were to be paid from two particular funds: (1) from unit closings when a unit closes, or (2) as is relevant in the instant case, from retained deposits when a unit does not close.

We, therefore, conclude that the listing agreement clearly identifies a particular fund for the payment of commissions due to the Broker in the event that a unit fails to close—the retained deposits. Thus, the Broker had an “ownership interest” in a portion of the retained deposits, and the trial court erred, as a matter of law, by entering final summary judgment in favor of the Lenders.

Id. at *3-4 (bold emphasis original). Undoubtedly, some would argue that the language of paragraph 7(g) does not expressly state that the deposits constituted a “fund” from which the broker was entitled to receive payment.  However, the more important take-away from the Plaza Tower case is that listing brokers should include express language in their agreements that references sources of potential payment, such as buyer-default deposits, as “funds” from which the broker must be paid.