Friday, December 21, 2012


Just like virtually all of my readers, Zach Manning and IntraRealty, Inc. are TREC licensees. Today they seem to be connected through ownership; not sure about 2006 when this case started.
2006 was the year that Manning and IntraRealty accepted a listing from HomeEq, to sell Texas property. HomeEq was a mortgage servicing company. HomeEq accepted a purchase offer from Karen Vicknair for $195,000 in 2007. While Karen’s contract was pending, HomEq transferred management of the property to Litton Loan Servicing. Manning and IntraRealty had no commission agreement with Litton.
Litton was unable to close the deal “. . . because it did not have the correct person to sign the deed.” So Karen terminated and received the return of her earnest money. Manning and IntraRealty then demanded that Litton pay a commission of $11,500. Litton refused to pay the commission since the property had not been conveyed.
So Manning and IntraRealty sued Litton. The trial court, based on a jury’s verdict, rendered judgment for Manning and IntraRealty for the $11,700 commission, plus $30,000 for attorney’s fees. The trial court concluded that a series of emails in 2007 constituted a legally binding contract for Litton to pay a commission if Manning and IntraRealty procured a ready, willing and able cash buyer.
Litton appealed, claiming that TREC statutes require a written agreement, signed by the party who is to pay the fee. Manning and IntraRealty relied on not only various emails, but also the Contract itself. The Contract did not specify a commission amount, although it did indicate that the obligations of the parties to compensate brokers were governed by separate written agreements.
Regardless, Manning and IntraRealty were unable to produce a written commission agreement, signed by Litton or its agent, obligating Litton to pay Manning and IntraRealty a stated fee based upon the conveyance of an identified property.
Relying on the strict interpretation of the Texas Real Estate License Act and consistent with many other Texas appellate decisions, the Texas Court of Appeals overturned the judgment of the trial court and rendered judgment for Litton. Without a written commission agreement signed by the party who is obligated to make payment, Texas laws were not satisfied and Litton owed nothing.
Litton wins. Manning and IntraRealty loses.
See Litton Loan Servicing LP v. Manning and IntraRealty Inc.; No. 05-10-00675-CV; Texas Court of Appeals - Dallas; April 26, 2012.
Lessons learned:
1.      Commission agreements must be in writing and signed by the party obligated to pay the fee!
2.      Commission agreements must identify the broker to whom the fee is payable!
3.      Commission agreements must identify the property that is the subject of the transaction!
Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

Wednesday, December 12, 2012

Tenants: Beware the Build-To-Suit

I love Supreme Court case opinions. The Supremes don’t take on commercial real estate cases very often. But when they do, we always receive a well-reasoned, uber-researched opinion.

And sometimes the Supremes are right!

More than 10 years ago ECO Resources, Inc., entered into a build-to-suit lease with its landlord TA / Sugar Land-ECO, Ltd. for the construction of a 32,000 s.f. office and lab. TASL then agreed to sell the property to Ashford Partners, Ltd. Closing was within 30 days after the commencement date of the ECO lease.

Construction was completed in about six months. ECO accepted the building as “substantially complete,” but submitted to TASL an 8-page punch list of items in need of repair. As required by the lease, ECO then executed an Estoppel Certificate (verifying the validity of the lease and other similar matters). TASL doubtless submitted the Estoppel to Ashford. Then TASL sold the building to Ashford two weeks later.

ECO’s building problems started two years later. Water collected under the foundation, evidently caused by the failure to caulk between the tilt wall panels below grade.

Ashford spent more than $313,000 to repair the problem, and then sued the construction contractor TASL had used and ECO. The claim against the contractor was settled. However, ECO filed a counterclaim against Ashford for breach of lease, and ECO did not abandon its claim.

At trial the jury found that ECO had been damaged because the value of its lease was diminished. The trial court rendered judgment for ECO against Ashford for almost $1.5 million.

Ashford appealed. The Court of Appeals concurred with the trial court, and accordingly affirmed the trial court’s judgment.

So Ashford appealed again, essentially claiming that since ECO complained of construction issues, Ashford had the building repaired and consequently ECO suffered no damages.

The Texas Supreme Court determined that the trial court and court of appeals had applied an improper damages test of the difference between rent and the value of the leasehold. Instead, the Supremes determined that the landlord’s obligations in the lease – to repair construction defects – had been adequately satisfied. Consequently, ECO had not been damaged and should not have prevailed in either the trial court or court of appeals.

The lower court judgment was reversed. Ashford wins. ECO loses.

See Ashford Partners Ltd. v ECO Resources Inc.; No. 10-0615; Supreme Court of the State of Texas; April 23, 2012.

Lessons learned:

1.  Build-to-suit leases are inherently risky for both landlord and tenant.

2.  If a tenant has a problem regarding construction that cannot be resolved, the tenant – at least in Texas – needs to argue this point in court: “business disruption.”

3.  If a landlord has a problem with a pesky tenant, the landlord – in Texas – should be able to respond with this statement in court: “I had it repaired.”

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.