Hubbell Commercial Brokers, L.C. v. Fountain Three: Fee Agreement between Brokers Not Subject to Real Estate Commission Rules

Iowa's highest court has considered whether an agreement between two commercial real estate brokers was subject to the state's real estate commission rules.

A real estate partnership named Fountain Three ("Owner") owned a large retail development in West Des Moines, Iowa. R & R Investors ("R & R") was one of the partners in the Owner, and R & R was also a licensed real estate broker.

In 1997, a real estate broker representing Golf Galaxy, Inc. ("Tenant"), a retail golf store chain based in Minnesota, contacted licensed commercial real estate broker William Friedman, Jr. ("Friedman") about assisting the Tenant in locating retail space in Des Moines. Friedman was associated with CB Richard Ellis/Hubbell Commercial ("Hubbell"). Friedman provided the Tenant with information about the Owner's development, and negotiations began between the Tenant's senior vice president and a R & R representative. R & R sent Friedman a letter stating that it would pay a certain commission amount to Friedman if the Tenant entered into a lease with the Owner, so long as the Tenant continued to recognize Hubbell as its "exclusive agent." Upon receipt of the letter, Friedman signed the letter and mailed it back to R & R.

The Owner and Tenant eventually entered into a lease. However, the Owner refused to pay Hubbell a real estate commission. Hubbell brought a lawsuit seeking payment of its commission. Following a trial, the trial court ruled in favor of Hubbell and awarded it the entire commission amount it sought. The Owner appealed.

The Supreme Court of Iowa affirmed the ruling of the trial court. On appeal, the Owner first argued that the agreement between R & R and Friedman was void because it failed to comply with the requirements for brokerage and listing agreements under the Iowa Real Estate Commission rules ("Rules"). The court first looked at the requirements of the Rules for listing agreements. The Rules set forth a number of requirements for listing agreements, including the terms and conditions of the sale and also an expiration date. Since the agreement between R & R and Friedman did not contain an expiration date, the Owner argued that the agreement was unenforceable.

The court rejected the Owner's arguments. The court found that the Rules exist to protect members of the public and this rule described an agreement between a licensee and a consumer, not an agreement between two real estate brokers. Similarly, the court found that the Rule's requirements for a brokerage agreement also described an agreement between a licensee and a consumer, not two real estate brokers. Thus the court rejected the Owner's argument about the application of the Rules to its agreement with Hubbell and affirmed the ruling of the trial court.

The court then considered the Owner's challenge to the jury verdict instructions by the trial court. The Owner argued that the trial court should have required the jury to find that the Tenant still recognized Hubbell as its "exclusive agent" at the time the parties entered into the lease. The court ruled that the jury was properly instructed that Hubbell needed to show that he had satisfied all the terms and conditions of its agreement with the Owner in order to be entitled to a commission, which is what the jury found in making the commission award to Hubbell. Thus, the commission award by the trial court was affirmed by the court.

Hubbell Commercial Brokers, L.C. v. Fountain Three, 652 N.W.2d 151 (Iowa 2002).

Notice: The information on this page may not be current. The archive is a collection of content previously published on one or more NAR web properties. Archive pages are not updated and may no longer be accurate. Users must independently verify the accuracy and currency of the information found here. The National Association of REALTORS® disclaims all liability for any loss or injury resulting from the use of the information or data found on this page.

Advertisement