Regardless of the type of registration contract used in a commercial real estate transaction, your customers must be informed of the rights and obligations arising from the registration contract. This also applies if you advise the commercial real estate agent or seller, as their right to receive compensation for their hard work depends on the validity of the registration contract. The registration agreement is not a standard document; Rather, it is a document that requires careful review, consideration, negotiation and drafting. Most sales of commercial properties begin when the seller hires a broker. The choice of broker by the seller may depend on a number of factors, such as. B the past relationship, the broker`s background and skills in relation to the particular property and the amount of the commission. The next step after choosing the broker is to execute a registration contract, which the broker usually prepares by adapting its standard form to the proposed transaction. Registration agreements vary considerably from state to state and broker to broker. However, most enrollment contracts deal with similar issues, and many of these issues can be very important to the seller. Some of these problems are obvious and others are not. Almost all of them are negotiable.
Below are seven of the most important points that the seller can negotiate in the broker`s listing contract. In addition, the seller will want mutual damages from the broker. The seller wants the broker`s consideration to cover the broker`s failure to comply with the broker`s obligations under the registration contract, as well as any claim arising from the broker`s actions that go beyond the broker`s area of responsibility as set out in the registration agreement. And there is another problem that the seller must take into account. The broker can negotiate or work with another broker representing a potential buyer. Unless a co-broker agreement is specifically addressed in the listing agreement, the seller will likely feel that the potential buyer`s broker will be compensated from the commission the seller pays to the seller`s broker. The seller will not want to be in a position where he will be sued by a broker representing the buyer, especially if that broker is upset due to a disagreement over the distribution of the commission between that broker and the seller`s broker. The seller therefore wants the broker`s indemnification provision to require the broker to indemnify the seller if another broker makes a claim against the seller, unless that claim arises from the seller`s actions.
There are at least three types of listing agreements that can be used in commercial real estate transactions. The first and most common form is the exclusive right of sale contract. With this type of listing agreement, the listing broker is entitled to a commission even if the owner sells the property without the listing broker being involved. The exclusivity contract protects the broker`s commission by providing that the seller must pay the broker even if the property is sold through the efforts of the seller or the efforts of another broker without the participation of the listing broker. Gudim Realty, Inc.c. Hughes, 284 minn. 39, 42, 169 N.W.2d 216, 218 (minn. 1969); Dostal vs Fore-M, LLC, 2006 WL 1320501 at *2 (Minn. Ct. App. 2006).
Too often, clients hire a lawyer for the first time as part of a commercial real estate transaction when they wish to make an offer to purchase a property or after receiving an offer to sell a property. Nevertheless, there is one important step in the process that is often overlooked – the review and negotiation of the registration agreement. Whether a lawyer represents the owner of the property, the buyer of the property or the broker/seller offering the property for sale, clients must be informed of the essential rights and obligations established and set out in the registration agreement. Registration agreements are not standard agreements and can be negotiated in several ways. They must contain legal requirements to be enforceable. Nevertheless, clients often sign the enrollment agreement without review or negotiation. Keep in mind that owners aren`t the only party who benefits from a thorough review and understanding of the listing agreement. Commercial real estate agents and sellers will also benefit. While this article focuses on representing the listing seller or broker, legal counsel should be aware that many of the concepts discussed in this document may also apply to buyer`s or brokerage contracts. A word about the termination of the registration contract.
The general rule is that a registration contract that includes a definitive expiration date, as used by Minn. Stat. §82.66, Subd. 1(b)(1) expires by its terms. Of course, the parties may also mutually agree to terminate the registration contract before it expires. A registration contract that does not specify a definitive expiration date, but essentially meets legal requirements, can be terminated at will. Rosenberg v. Heritage Renovations, LLC, 685 N.W.2d 320, 326 (min.
2004). Browse the registration agreement again to get an amicable expiration date. Most brokers will not be embarrassed to add language to the listing agreement that requires the sale to be completed before the broker has earned their commission. In addition, it is in the seller`s interest to extend this concept so that the broker is not entitled to any other fees, compensation or refund other than certain exclusions, unless the sale is concluded. For example, the seller would not want to pay the broker all or part of an expired deposit. The seller also does not want to reimburse the broker for any fees or expenses, unless the broker and the seller have expressly negotiated a reimbursement of costs or a “supply of facilities” to reimburse the broker for certain costs such as creating a brochure and advertising. If the seller accepts such a reimbursement provision, it should consider limiting the types of expenses eligible for reimbursement, requiring that reimbursable expenses be paid only to parties who are not affiliated with or employed by the broker, and setting a cap on the seller`s maximum reimbursement obligation. Since almost all real estate transactions involve the same considerations, most listing contracts require similar information. This includes a description of the property (which should include lists of all personal items that will remain with the property at the time of sale, as well as any furniture and equipment that are not included), a list price, the broker`s obligations, the seller`s obligations, the broker`s remuneration, the terms of mediation, a date of termination of the registration contract and additional conditions. Perhaps the most difficult provision to negotiate in a registration agreement is the compensation provision. The broker does not want to be held liable to anyone in their efforts to market the seller`s property.
Therefore, many registration agreements contain a very general indemnification provision that requires the seller to indemnify the broker in the event that a claim is made against the broker in any way related to the property or the broker`s efforts to market the property. Although it is understandable from the broker`s point of view, the seller will not want to be responsible for the behavior of anyone other than his own, and the seller will only want to be liable for his negligent behavior or contrary to his obligations in the registration contract or constitutes a breach of his obligations. It is interesting to know that there are non-exclusive agreements when it comes to real estate agents. I plan to look for a commercial real estate agent soon to get a glimpse of how the market is developing right now. That way, I can decide if it`s time to start investing. Many listing contracts require the seller to provide written information about the property, and some require the seller to provide disclosures or representations or warranties regarding the condition of the property. Both provisions could cause problems for the seller. For example, the wording that the seller provides “all documents relating to the property” is too broad and could result in possible liability on the part of the seller if the seller inadvertently fails to disclose the documents in its possession.
Such language could also be interpreted as requiring the seller to provide documents that are in the possession of the seller`s lawyers, engineers or management company. And in the absence of an explicit limitation, the seller could be held liable if any of the documents, including those created by third parties, contain false or false statements or information. .