Procuring Cause Usually Gets a Broker Paid

Contrary to the belief of many, obtaining a real estate sales license does not automatically lead to great wealth. As any real estate broker will explain, compensation in the real estate sale industry is generally commission based with payment based on contract and performance. Absent a special contract, the broker or agent must be the procuring cause of a sale to successfully claim payment.

Many have heard of procuring cause, but far less know what that means. Procuring cause is an equitable concept to make sure payment is made for putting a sale together. Florida judges use a uniform definition in procuring cause cases. To be the procuring cause of a sale, the real estate broker must bring buyer and seller together and thereafter be continuously involved in negotiation that results in a contract.

Procuring cause is a fact issue. That opens the door to a seller arguing that no payment is due because the broker was not procuring cause. This argument can be encouraged by a lack of uniformity in how the courts decide these cases. Let’s look at a few cases.

In Real Capital Partners LLC v. Alhambra Center, the seller argued no commission was due because the broker did not procure the buyer. The evidence established that the broker attempted to arrange sale of three parcels owned by the seller over a two-year period. The broker had a commission contract for one specific buyer only. The broker brought numerous buyers to the property, none of whom entered a contract with the seller.

Toward the end of the broker’s dealings with the seller, the broker brought George Scopetta to the seller with an offer to buy all three parcels. At a meeting, the seller told the broker and Scopetta only two of the parcels were available because one was under contract. The broker then stopped working with Scopetta and moved on to other buyers who might buy the remaining two parcels.

Two months later, Scopetta went back to the seller with a different broker and ultimately purchased all three parcels. The court ruled that the first broker was not the procuring cause because the broker was not continuously involved in negotiations leading to a successful contract and closing.

Does continuing negotiations really mean continuing? That’s what it usually means, but the cases can be confusing. In Venturevest Realty, the seller contracted with a broker to sell a shopping center and an out-parcel. The broker brought two offers from the same buyer to buy the shopping center but not the out-parcel and despite negotiations, the deal fell through. The seller insisted the sale include both shopping center and out-parcel. The seller terminated the brokerage agreement but gave the broker a sixty-day protection period.

The broker tried to contact the buyer during the sixty-day protection period. But the buyer refused to deal with the broker. Five months after the protection period expired, the same buyer approached the seller through a different broker and bought the shopping center without the out-parcel. The original broker sued for compensation and won.

The court explained that the seller and buyer had intentionally cut the broker out and that the delay was not significant because the broker had brought the parties together and started negotiation. Even a substantial difference between the buyer’s initial offer and the ultimate contract did not defeat the first broker’s claim.

We learn from Venturevest that continuous may not mean continuous. We also learn that when the broker is cut out of the deal, the seller cannot use failure to be involved as defense to payment. In this case, even after the listing contract expired the broker got paid.

Things can change when there is an actual contract between seller and broker. In that case, terms of the contract apply.

Most listing contracts benefit the broker by giving the broker an exclusive right to sell. That means if the property is sold during term of the brokerage contract, the broker gets paid even if the broker was not procuring cause. But, here again, things can get complicated.

In the Lones Family Limited Partnership case, a broker had a listing agreement under which the broker got paid if the property was leased or sold during a specific twelve-month period. The listing also had a protection period for an additional twelve months, during which if the property was sold to someone to whom the property was submitted during the listing period, the broker got paid.

The court ruled the listing contract was a “special contract.” The court explained a special contract in Florida is not limited to contracts with peculiar terms but includes an express contract not dependent on implied terms.

The court went on to explain that procuring cause would only apply in absence of a special contract. The contract here limited right to payment to a specific time period and, as such, precluded the application of procuring cause. The parties did not incorporate procuring cause into the listing agreement and therefore it was not applicable.

The result in the Lones Family case seems somewhat contradicted by the Venturevest case. That can make predicting liability in these cases harder. What is clear is real estate brokers don’t always get paid.