E-Alert Case Updates

Landlord Breaches Implied-In-Fact Contract in Failing to Pay Broker’s Commission in Connection with Long-Term Lease Negotiation

Steuart Investment Co. v. The Meyer Group, Ltd.
Nos. 11-CV-20 & 11-CV-346 (District of Columbia Court of Appeals, March 7, 2013)
by Colleen K. O’Brien, Associate
Semmes, Bowen & Semmes (www.semmes.com)

This case arose from a dispute over a commercial real estate broker’s commission from negotiating a ten (10) year, multi-million-dollar lease agreement between a real estate investment company landlord and a non-profit organization tenant. Although the parties agreed that it was standard in the industry for landlords to pay the tenant’s broker’s commission fee and that the broker in this case all along expected the landlord to pay the standard 3 percent commission, they disagreed about whether the landlord’s refusal to pay the broker’s commission was the breach of an implied-in-fact contract or simply the result of the parties’ failure to agree on a specific commission.

The trial court concluded that the landlord breached an implied contract and awarded the broker damages that amounted to a 3 percent commission on the aggregate value of the ten (10) year lease. On appeal, the landlord challenged the existence of the implied-in-fact contract, as well as the trial court’s determination that the landlord was responsible for the broker’s commission under the additional principles of unjust enrichment and equitable estoppel. The appellate court agreed that an implied-in-fact contract existed between the parties and that the trial court properly calculated the damages, and affirmed the trial court judgment.

The appellate court noted that an implied-in-fact contract differs from other contracts in that it has not been committed to writing or stated orally in express terms, but rather is inferred from the conduct of the parties. In the context of a commission for a broker where there is no written commission agreement, the broker must demonstrate the following to establish the existence of an implied-in-fact contract: 1) the services were carried out under such circumstances as to give the recipient reason to understand that the services were rendered for the recipient and not for some other person; 2) the existence of such circumstances as to put the recipient on notice that the services were not rendered gratuitously; and, 3) the services were beneficial to the recipient.

As to the first element, the record was full of concrete proof that the landlord knew that the commercial real estate broker was negotiating a lease between the landlord and the tenant, with every expectation that the landlord would pay its commission. The broker repeatedly sent the landlord its commission letter spelling this out in plain terms. In addition, the parties’ written agreements like the lease between the tenant and the landlord formally evinced the expectation shared by all of the parties that the landlord would be paying the broker’s commission.

As to the second element, the Court noted that the landlord was on notice that the broker was not rendering its services gratuitously, since the broker asserted that he expected the landlord to pay him a 3 percent commission, and the landlord even admitted that brokers “don’t work for free.” Moreover, when the recipient of the broker services is put on notice, it must communicate opposition to avoid liability. Here, there was no such opposition and representatives of the landlord even assured the broker that “he would get paid.”

As to the third element, whether the services were beneficial to the landlord, the Court noted that the record was clear that the landlord benefitted from the broker’s services. The landlord even misled the broker about the payment of his commission in order to ensure the broker’s continued participation for fear that the broker’s departure would doom the deal. In addition, the broker negotiated a 10 (ten) year lease, which was a benefit to the landlord.

Because the appellate court affirmed the trial court’s finding that the landlord breached an implied-in-fact agreement to pay the broker’s commission, it did not reach the alternative equitable estoppel and unjust enrichment claims.