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The issue in Badger III Limited Partnership v. Howard, Needles, Tammen & Bergendoff, was whether a real estate broker licensed in Illinois but not licensed in Wisconsin was entitled to a brokerage commission from a Wisconsin office lease transaction, when the commission would be collected for the Illinois broker by a broker licensed in Wisconsin. The court held that neither the Illinois broker nor the Wisconsin broker who acted as the conduit for the commission were entitled to a commission from the transaction.
Samuel Spiro, a real estate broker licensed in Illinois but not in Wisconsin, represented a tenant in its lease renewal negotiations for space in a Wisconsin office building. Concerned that he would not be able to collect a commission for brokerage work performed in Wisconsin, Spiro had structured the transaction so that the commission would be collected on his behalf by Robert Tepler, a real estate broker licensed in Wisconsin, who then would transmit the commission to Spiro.
It was undisputed that Spiro was acting as a real estate broker in Wisconsin. The court stated that the activities of out-of-state brokers are governed by two Wisconsin statutes, one addressing broker licensing, and one addressing fee splitting. The court observed that Sprio's activities clearly were in violation of Wisconsin statutes, which prohibit persons not licensed in Wisconsin from providing real estate services in Wisconsin. "It is clear from the record...that the arrangement was an attempt to circumvent the law that prohibits out-of-state brokers from receiving commissions for brokerage work performed in Wisconsin unless those brokers are also licensed in Wisconsin." Stating that an agreement to pay a commission to someone who is not licensed in Wisconsin is not an enforceable obligation, and is "void at its inception", the court held that Spiro was not entitled to a commission in connection with the lease. The court observed that Spiro could have avoided this result if he had complied with Wisconsin licensing requirements for nonresidents.
Wisconsin law does allow a Wisconsin-licensed real estate broker to pay a cobrokerage fee to someone who is not licensed in Wisconsin, but is licensed in another state, in return for the performance of real estate brokerage services in Wisconsin. It also allows the payment of a referral fee to a person who is not licensed in Wisconsin. However, in Badger, the court did not allow the payment to Spiro to be characterized as either of these types of payments. The court pointed out that Tepler, the Wisconsin-licensed broker, only served as a conduit for the commission. Since he did not perform any real estate services in connection with the lease, the payment from Tepler to Spiro could not be considered a cobrokerage fee, nor could it be considered a referral fee, both of which "denote payment in return for something of value." The court also found that since Tepler had performed no real estate services in connection with the transaction, he also was not entitled to a commission.
Badger III Limited Partnership v. Howard, Needles, Tammen & Bergendoff, 196 Wis. 2d 891, 539 N.W.2d 904 (Wisc. Ct. App. 1995).