No Signed Lease, Yet Broker’s Fee Must Be Paid

By Robert P. Rudolph, Esq.

A Massachusetts court recently held that a broker was entitled to her broker’s fee despite the fact that no lease was consummated. In Ria K, McNamara. Inc. v. Forecast Shrewsbury Ltd. P’ship. 31 Mass.L.Rptr. 366 (Mass. Super. July 17, 2013), the Plaintiff Ria K. McNamara (“McNamara”) filed suit for payment of a broker’s fee against the owner of Quinsigamond Plaza (“Q Plaza”) in Shrewsbury. Q Plaza was owned by a limited liability partnership of which Joshua Katzen (“Katzen”) was a duly authorized principal, officer and agent. McNamara and Katzen both had nearly twenty years of commercial retail real estate experience and had worked together in the past.

In early August 2006, Katzen approached McNamara about providing brokerage services to find a tenant for space occupied by a financially troubled Ski Market store, Trader Joe’s was an occupant of the space next to Ski Market and since signing its lease in 1999, Katzen had made regular and repeated inquiries to Trader Joe’s about expanding into the Ski Market space, Trader Joes repeatedly denied the offers.

Katzen and McNamara negotiated and entered into a listing agreement which gave McNamara the exclusive right to market the space and provided Katzen the sole right to accept and reject offers from Lessees. The listing agreement provided that no broker’s fee be paid to McNamara unless a tenant procured by McNamara paid rent to the owner of Q Plaza, at which point McNamara would be entitled to her full fee. It was Katzen and McNamnara’s usual practice from prior dealings that McNamara be paid a 50% fee for any deals made with an existing Q Plaza tenant.

Katzen was aware that Trader Joe’s prefers not to have medical use tenants within 250 feet of their locations. In June, 2008 Katzen instructed McNamara to put up a “Medical Space for Lease” sign near the property. In July, 2009, McNamara was contacted by a dental group with whom he engaged in letter of intent and lease negotiations, In September, 2009 Katzen informed McNamara that he would take the deal with the dental group. As of October 21, 2009, the lease had been fully negotiated, drafted and presented to Katzen for signing.

In late October, 2009, Katzen notified Trader Joe’s of the potential new medical use tenant and said it was their last chance to take the Ski Market space. Katzen told McNamara that Trader Joe’s had a right of first refusal, which it did not. Trader Joe’s decided to take the space, paying double the per square foot rental rate that the dental group would have paid. The dental group never paid any rent to the owner of Q Plaza.

According to the decision in Tristram’s Landing, Inc. v. Wait., 367 Mass. 622 (1975), a broker earns her commission when (1) she produces a purchaser ready, willing and able to buy on the terms fixed by the owner (2) the purchaser enters into a binding contract with the owner to do so and (3) the purchaser completes the transaction. An exception exists which entitles a broker to her fee where the seller commits a wrongful act or interference and there exists a signed binding agreement between the seller and broker’s client. Unfortunately for McNamara, the lease with the dental group was never signed. However, the judge held that McNamara was entitled to her fee if Katzen engaged in bad faith dealing or some other misconduct which prevented the agreement from being completed.

The Court held that Katzen could not actively work against McNamara by using her efforts to obtain a bona fide new tenant to leverage an existing tenant into the space without allowing McNamara to broker the deal. This was precisely the type of bad faith dealing and misconduct contemplated by the exceptions to the general rule.