The United States Court of Appeals for the District of Columbia has held that a broker who provided substantial services resulting in the sale of real property – but who did not have a written listing agreement with the property owner – is not entitled to receive a commission for the sale of the property (CB Richard Ellis Real Estate Services, Inc. v. Spitz). The court further found that a District of Columbia statute prevented the broker from seeking to recover compensation under other legal theories, such as unjust enrichment. Nevertheless, it held that the broker may seek compensation for other services that the broker provided, so long as the broker provided those services before the owner contemplated selling the property.
Background
In CB Richard Ellis, the owner of the property located at 1899 Pennsylvania Avenue in Northwest Washington, D.C., retained Insignia/ESG, Inc. (Insignia) to procure debt and equity financing for the refinancing or recapitalization of the property, which had undergone extensive (and expensive) renovations. The owner and Insignia began negotiating the terms of their engagement, but because the owner did not contemplate selling the property, the draft agreement (the parties dispute whether the parties reached a final agreement) did not state that Insignia would receive a commission upon the sale of the property. The owner ultimately sold the property, and the sale document specified that Insignia would receive a $200,000 broker fee for its services. Notwithstanding this acknowledgement that Insignia played an important role in arranging the transaction and should receive a fee for its services, the owner disputed its obligation to pay Insignia any compensation, including the brokerage fee set forth in the sale document.
Insignia filed a complaint against the owner alleging 13 counts of relief. The trial court granted summary judgment in favor of the owners, and the D.C. Court of Appeals affirmed in part, holding that the transaction was a sale subject to D.C. Code § 42-1705, which states that a "written listing contract is required in the District for the sale of all real property," and that a broker "shall not receive payment of a commission in the absence of a written listing agreement." At issue was whether the parties had entered into a written listing agreement, and whether Insignia was entitled to any compensation for the services it provided. The court noted that the parties' collaboration extended over many months, and for most of that time, neither party expected the owner to sell the property. For that reason, the document upon which Insignia relied to establish the requisite "written agreement" did not contemplate the sale or purchase of the property. Therefore, the court ruled, Insignia could not establish the existence of a written listing contract as required by the statute and was ineligible to receive payment of a commission.
Get It in Writing
The broker's failure to secure a written listing contract was fatal to all of the broker's claims that were based upon the sale of the property. The appeals court held that a broker who assists in the sale of real property may not avoid the force of D.C. Code § 42-1705 by suing on alternative theories, including that the parties had reached an oral agreement that a contract was implied in fact, or that the broker was entitled to compensation for the value of his services to prevent the owner's unjust enrichment.
Nevertheless, the court left open the possibility that Insignia could obtain a recovery. It held that while the absence of a written listing agreement would prevent the broker from receiving a commission for the sale of real property, the statute would not prohibit the broker from receiving compensation for services contracted for and provided before it was clear that the property would be sold, including Insignia's efforts to help the owners attract refinancing or recapitalization. As a result, the court remanded the case for the trial court to determine whether Insignia was entitled to any such compensation based upon an oral or written agreement, or alternatively, under an unjust enrichment theory.
Given the CB Richard Ellis decision, parties to a real estate services contract in the District of Columbia should set forth in a written agreement the nature of the services being provided, and whether the broker will be entitled to a commission upon the sale of real property. Brokers who fail to secure such a written agreement do so at the risk of being unable to collect a fee for their services, regardless of the amount of time they invest in the transaction.
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