Commission Disputes With a Commercial Real Estate Broker in Texas

The written agreement rule

Texas treats a real estate commission differently from most debts. Under Occupations Code § 1101.806(c), a person may not maintain an action in Texas to recover a commission for the sale or purchase of real estate unless the promise or agreement on which the action is based, or a memorandum of it, is in writing and signed by the party against whom the action is brought or by a person authorized to sign for that party. Under § 1101.806(b) the person suing must also prove it was a licensed broker or sales agent when the act began, or a licensed attorney.

Courts enforce the writing requirement as written. A broker who introduced the buyer, negotiated the letter of intent and attended the closing has no claim against an owner who never signed a commission agreement, and cannot get around the statute by pleading quantum meruit or unjust enrichment for the same work. Texas courts have required that the writing be signed by the party to be charged, contain or refer to a promise to pay a commission, and identify the property and the broker with reasonable certainty, though they have accepted the writing in several documents read together, such as a signed letter of intent that refers to a commission schedule. Emails can satisfy the requirement when they come from the party to be charged and contain the promise.

The rule has two statutory carve-outs in § 1101.806(a): it does not apply to agreements between license holders to share compensation, and it does not limit a cause of action among brokers for interference with business relationships. A broker cut out of a deal by another broker therefore may have a tortious interference claim even without a writing from the principal, discussed in tortious interference with a contract in Texas. Section 1101.806(d) adds that a license holder who fails to give a buyer the written advice about title that § 1101.555 requires cannot recover the commission on that sale.

Once there is a writing: what the fight is about

Procuring cause

When an agreement promises a commission to the broker who procures a buyer or tenant, or when two brokers each claim the same deal, the question is procuring cause: whether the broker's efforts set in motion an unbroken chain of events that led to the transaction. A broker who first showed the property, introduced the parties and carried negotiations most of the way is usually the procuring cause even if another broker or the principal closed the deal. A broker whose contact went cold and whose prospect returned months later through a different route may not be. The facts of the chain decide it, and the agreement's own definition of when a commission is earned often overrides the common law test.

Protection periods and expired listings

Listing and tenant representation agreements commonly include a tail clause: a commission remains payable if, within a stated period after the agreement ends, the property is sold or leased to a prospect the broker registered or introduced during the term. Disputes center on whether the prospect was properly registered in writing before expiration, whether the deal closed inside the period, and whether the eventual buyer is the same party as the registered prospect or an affiliate created to avoid the clause.

Lease commissions over time

Lease commissions are often paid in installments, with further commissions due on renewals, expansions and purchase options the tenant later exercises. Years later the landlord has changed, the lease has been amended and the original broker is gone. Whether the new owner owes the renewal commission depends on whether the commission agreement binds successors and assigns, whether the buyer assumed it in the purchase documents, and whether the agreement was recorded or secured by a lien. A commission agreement that binds only the original landlord personally leaves the broker to pursue that landlord after the sale.

Conditions and the closing that never happened

Many agreements make the commission payable at closing. If the deal falls apart, the question is whether the agreement also promises a commission when the broker produces a ready, willing and able buyer and the owner refuses to sell. Some do; many do not. A commission clause in the purchase contract itself, signed by both principals, may also be enforceable by the broker as a third-party beneficiary.

The commercial broker's lien

Chapter 62 of the Property Code gives a broker a lien to secure an earned commission on commercial real estate, defined in § 62.003 to exclude property with one to four residential units, single-family units sold or leased individually, homesteads, unimproved land zoned or restricted for single-family use and most farm and ranch land. Under § 62.021 the lien attaches to the seller's or lessor's interest when the commission agreement was signed by the seller or lessor, to the buyer's acquired interest when signed by the buyer, and to the tenant's leasehold when signed by the tenant. Only the broker named in the agreement may claim it, not the broker's employees or independent contractors, and under § 62.021(e) the right to claim a lien must be disclosed in the commission agreement itself.

Timing is strict. Under § 62.041 a broker claiming against a seller must record the notice of lien after the commission is earned and before the seller's interest is conveyed; a broker claiming against a buyer records after the buyer takes title and before the buyer conveys; and a broker claiming a lease commission must record before the earlier of the 91st day after the event that makes the commission payable or the date the obligated party records a later conveyance. A notice recorded late is void under § 62.041(d). Under § 62.062 the broker must sue to foreclose by the second anniversary of recording (with different rules for deferred commissions, and within 30 days after a written demand from the owner to sue), or the lien is void. The chapter also lets the owner clear the title by escrowing the disputed amount or posting a bond, so the lien secures the claim without blocking the closing.

Example

Suppose a tenant representation broker in Dallas signs an agreement with a logistics company to find warehouse space, and the landlord of the building the tenant chooses signs a commission agreement promising a percentage of base rent over the initial term and on any expansion exercised within five years. Three years later the tenant expands into the adjoining 40,000 square feet. The building has since been sold to a fund that says it never agreed to pay anyone. The broker's claim against the fund turns on whether the commission agreement bound successors and whether the fund's purchase agreement assumed it; if not, the claim runs against the original landlord. If the broker recorded a chapter 62 lien within 90 days of the expansion commission becoming payable, the lien attaches to the lessor's interest and the fund must deal with it. If the broker only had an unsigned proposal and a string of emails from the property manager confirming the rate, the first question in court is whether the property manager had authority to bind the owner.

Defenses an owner raises

• No signed writing by the owner or anyone authorized to sign for it.
• No license when the work began, or the plaintiff is an unlicensed assistant or finder.
• Not the procuring cause: the chain of events was broken, or another broker or the principal produced the deal.
• Condition not met: the deal never closed and the agreement pays only on closing.
• Outside the protection period or the prospect was never registered.
• Successor did not assume the agreement, and the lien, if any, was recorded late.
• Breach by the broker, such as undisclosed dual representation or a conflict, which may forfeit the commission.

Evidence

• Every version of the listing, representation or commission agreement, with signatures and dates, and the authority of whoever signed.
• Prospect registration letters and the correspondence that shows who introduced whom and when.
• Letters of intent, the purchase or lease agreement and any commission clause in them.
• Closing statements and settlement sheets showing what commissions were paid to whom.
• Recorded lien notices, with the recording dates measured against § 62.041.

These claims are contract claims, so the four-year limitations period for breach of a written contract generally applies, and the usual damages and fee rules for contract cases follow, which are addressed in recovering attorney's fees in a Texas contract case. Tina Wysk represents owners, landlords, tenants and brokers in commission and brokerage disputes in Dallas-area courts through the firm's real estate litigation practice.