VOL. 129 | NO. 52 | Monday, March 17, 2014
Broker’s Act to Reflect Commission Changes
By Rosemarie Fair
The Broker’s Act has been enhanced by our state legislature and will be signed into law this month.
The Tennessee Association of Realtors Governmental Affairs Committee recommended an important modification to the language of the “Notice of Agreement to Pay Leasing Commission,” and the Metro Memphis CCIM chapter initiated a call to action where members sent emails to state legislators explaining the importance of passing this amendment.
The Memphis Area Association of Realtors and TAR authored language for the original act, which provided recourse for agents to receive commissions that are payable over time.
CCIM and TAR supported legislation that the act be improved by expanding the language to include other circumstances – notably commissions paid in lump sums, and that subsequent owners would be liable for fees and commissions owed to a commercial real estate broker that accrued during the period that a prior owner held title to the property.
The original act limited commercial real estate broker recourse for commissions or fees payable in the future based on rental income. A broker could record a notice with the Register of Deeds to wit the purchaser(s) of the commercial property is notified of the commitment to pay commissions based upon rental income.
Not addressed in the 1997 Act were situations when commercial leasing agents might be paid in a lump sum, perhaps payable upon execution of the lease, at the date of occupancy, or at the time the first month’s rent is collected where the prior owner did not pay fees or commission that accrued during the time the prior owner held title to the property.
Several decades ago, it was common practice to receive commissions as the rental income was collected. Now the practice has shifted to receipt of commissions on a cash-out basis, when commissions are collected at the time of execution of the lease or shortly thereafter.
The previous law did not address lump sum commissions paid at execution of the lease or lump sum payments paid at time the first month’s rent is received by the lessor. Examples include when an agent significantly enhances a property’s value by achieving a full rent roll, or a commission agreement that defines lump sum payments in the future, the subsequent owner receives the benefit of the agent’s work.
When the property ownership is transferred prior to the payment of the commissions, if proper notice was recorded, the subsequent owner becomes liable for the payment of fees or commissions to the commercial real estate broker.
The process for seeking recourse begins by filing a Notice of Agreement to Pay Leasing Commission with the Office of the Register of Deeds. The broker has one year from the latter of transfer of ownership or after the claim for a commission accrues, to file a suit in court.
Rosemarie Fair, CCIM and CPM President of One Source Commercial, is a 30-year veteran of commercial real estate transactions.