Tom Heal Commercial Real Estate, Inc., v. Overton: Broker Awarded Commission for Lease Renewal
A Utah appellate court has considered whether a commercial brokerage could collect a commission for a lease renewal which occurred outside of the listing agreement's protection period.
Glen Overton and Zions Holding Company, L.C., (collectively, "Owners") were the owners of an office building. The Owners retained Tom Heal Commercial Real Estate, Inc. ("Brokerage") to help them locate tenants for their building. The listing agreement ("Agreement") lasted for three months, and contained a provision awarding the Brokerage a commission for any lease renewals for a tenant acquired by the Brokerage. The Agreement also contained a "protection clause", which allowed the Brokerage to collect a commission for 24 months following the expiration of the Agreement for any party who was introduced to the property by the Brokerage and subsequently enters into the transaction with the Owners.
The Brokerage procured a tenant who signed a three year lease with the Owners during the listing period. The tenant then renewed its lease ("Renewal") following the expiration of the initial lease period. The Brokerage sought a commission for the Renewal, but the Owners refused to pay the Brokerage a commission for the Renewal. The Brokerage filed a lawsuit seeking payment of the Renewal commission, and the trial court ruled that the Brokerage could only recover a commission for transactions occurring during the protection period. The trial court also awarded the Owners attorney's fees, pursuant to a provision awarding such fees in the Agreement. The Brokerage appealed.
The Utah Court of Appeals reversed the trial court, ruling that the Brokerage was entitled to a commission from the Renewal and also an award of attorney's fees. The trial court had determined that the provisions governing renewals and the protection period language should all be read together and so had concluded that the Brokerage could only recover commissions for renewals that occurred within 24 months after the expiration of the Agreement. The Brokerage argued that the protection clause had no relevance to this dispute, and instead the Brokerage was entitled to recover a commission based on the provisions in the Agreement covering renewals.
The court first looked at the protection clause found in the agreement. The court found that the protection clause covered a tenant or buyer who was shown the property during the listing period but did not enter into a transaction until after the expiration of the Agreement. The court also noted that the protection clause started with "if", meaning that it only applied to that specific situation, i.e., a transaction outside of the listing period. The court stated that this provision did not apply to a lease renewal, and so the court ruled that the protection clause had no relevance to this dispute.
Next, the court looked at the paragraph covering renewals. The court found that this paragraph allowed the Brokerage to recover a commission for all lease renewals, and so the Brokerage should be entitled to a recovery for the Renewal. While the Owners argued that they had never intended the Agreement to require commission payments for lease renewals, the court ruled such extraneous testimony was irrelevant when a contract was clear in its terms. Since the Agreement required the payment of a commission to the Brokerage for renewals, the court reversed the trial court's judgment in favor of the Owners and reversed the award of attorney's fees to the Owners. The court sent the case back to the trial court so that the trial court could enter a judgment in favor of the Brokerage for the commission amount and also award the Brokerage attorney's fees.
Tom Heal Commercial Real Estate, Inc., v. Overton, 116 P.3d 965 (Utah Ct. App. 2005).
Editor's Note: NAR submitted an amicus curiae brief in support of the Brokerage, per the direction of NAR's Legal Action Committee.