Rosenberg v. Heritage Renovations, LLC: Broker Denied Post-Termination Commissions

A Minnesota appellate court has considered whether a salesperson is entitled to receive commissions for sales in a housing development which closed after the developer terminated its relationship with the salesperson.

Heritage Renovations, LLC ("Developer") owned real property on which it planned to build twelve buildings containing 350 units over four phases. In 1997, the Developer created a separate corporation, Heritage Marketing, LLC ("Marketing"). The Developer contracted with Marketing to receiving property marketing services for the sale of the units in the development, specifying that Marketing would subcontract for such services. In 1997, Marketing entered into a listing agreement with a licensed real estate brokerage, Shelter Consultants ("Brokerage"), for such services. The listing agreement specified the duties required of the Brokerage's salesperson and expired after one year.

The Brokerage sold units for Phases 1 and 2 of the Development, and in September 2000 began selling Phase 3 units. The parties never entered another listing agreement, but rather kept performing under the original agreement. In February 2001, Marketing sent the Brokerage a notice terminating the listing agreement. The Brokerage received commissions from all sales which closed prior to the termination date, but Marketing and the Developer refused to pay any post-closing commissions to the Brokerage. The Brokerage brought a lawsuit against Marketing and the Developer for commissions for certain sales which closed following the Brokerage's termination. The trial court ruled against the Brokerage, and the Brokerage appealed.

The Court of Appeals of Minnesota affirmed the ruling of the trial court. On appeal, the Brokerage argued that there were fact questions over whether the listing agreement was intended to cover all four phases of the development and so it was inappropriate for the trial court to enter judgment without conducting a trial to resolve the fact issues. Marketing and the Developer argued that under Minnesota law, there was no valid listing agreement because the agreement between the parties failed to comply with the requirements of Minnesota law and so the Brokerage was not entitled to receive a commission.

The court stated that in order for a broker to recover a commission in Minnesota, the broker must show that a valid listing agreement existed between the parties. Minnesota law requires that listing agreements must contain provisions such as a definite termination date, a property description, list price, broker's compensation, and information regarding an override clause. Looking at Minnesota case law, the court found that prior decisions had found valid listing agreements when an agreement substantially complied with the statutory requirements and the parties performed under the agreement as if it were valid. Since this agreement substantially complied with Minnesota law and the parties had performed under the agreement for over three years, the court found a valid listing agreement between the parties.

Next, the court considered whether the Brokerage was entitled to a commission. The court stated that since the listing agreement did not contain a specific termination date (as the parties had passed the original expiration date), the listing agreement was terminable at will. To receive commissions for sales which occur after the termination of the listing agreement, the listing agreement must contain an override (or "protection") clause and the salesperson must give the seller a list of names on the "protective list", which would be a list of potential buyers with whom the salesperson has negotiated with prior to the termination of the listing agreement. Since the listing agreement did not contain an override clause and the Brokerage had not produced a protective list, the court ruled that the Brokerage was not entitled to receive a commission. Thus, the court affirmed the ruling of the lower court.

Rosenberg v. Heritage Renovations, LLC, 685 N.W.2d 320 (Minn. Ct. App. 2003), rev. granted, (Minn. Sept. 24, 2003).

Editor's Note: Minnesota's highest court has accepted this case for review and the Minnesota Association of REALTORS® has filed an amicus brief in support of the Brokerage's position. The Association's amicus curiae brief requests that the court clarify aspects of Minnesota law which the appellate court opinion leaves unclear.