A New Kind Of Condo Lawsuit: Related Group Sues Brokers To Claw Back Commissions On Defaulted Condo Units

The Miami Herald reports on the newest flavor of lawsuit directly attributable to the South Florida condo market crisis: a developer suing real estate brokers to claw back commissions for condo units on which the buyers failed to close.  According to the Herald, Miami condo titan Related Group filed at least 15 lawsuits in the past couple months against brokerages, seeking recovery of over $460,000 in commissions with respect to defaulted units at the Hallandale Beach Club Tower III.

This is certainly an aggressive move on Related’s part, although perhaps not a surprising move given that every last dollar counts under current condo market conditions.  I would expect a wave of similar suits to follow with respect to other projects with high default rates, and as other developers take their cue from Related, feeding into the condo litigation tsunami which to date has largely consisted of buyers seeking recovery of their preconstruction deposits from developers.

From a legal standpoint, and solely going by the Herald article, it would seem that the key issues in the new actions filed by Related revolve around interpreting the terms of its agreements with the brokerages (which apparently state that commissions are not earned until the units close) and reconciling those agreements with industry custom (by which commissions were paid to the brokers after the initial deposits were paid).  Like the salient issues in condo purchase agreement litigation which have been covered extensively in this blog, these are contentious issues and will likely spawn conflicting rulings in the coming months if a large volume of similar cases are indeed filed.

On another note, I want to extend my thanks to everyone who has been following the blog, and to the many readers who have taken the time to e-mail me with comments or questions recently, or have posted their comments directly to the blog itself.  I greatly enjoy hearing from individuals all over the world — both laypersons and fellow attorneys — who have an interest in the various legal issues arising from the Florida condo market.  I encourage readers to continue sending me questions and comments, as they help immensely with this blog’s mission of bringing some clarity or at least focus with respect to some of the current legal uncertainties buzzing in Florida courts.  Also, please stay tuned in the coming weeks as I am presently working on a series of articles which will explore in greater depth some of the more pressing legal issues arising out of the federal Interstate Land Sales Full Dislcosure Act (ILSA) and the Florida condominium statute which have already been examined in this blog.

By Jared H. Beck, Esq.

This article does not constitute legal advice or the formation of an attorney-client relationship, and is not for re-publication without express permission of the author.

Mr. Beck has a law degree from Harvard Law School, and practices law in the courts of South Florida. His law firm, Beck & Lee Business Trial Lawyers in Miami, is dedicated to the practice of business and real estate litigation. A significant portion of Mr. Beck’s practice is devoted to issues arising under condominium purchase agreements. He can be reached at 305-789-0072 or jared@beckandlee.com

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Filed under Condo Litigation, Florida, Florida Condo Law, Florida Condo Market, Florida Law, Interstate Land Sales Full Disclosure Act, Litigation, Miami Condo Contract Lawyer, Miami Real Estate, Real Estate, Real Estate Litigation, South Florida, U.S. Housing Market

5 responses to “A New Kind Of Condo Lawsuit: Related Group Sues Brokers To Claw Back Commissions On Defaulted Condo Units

  1. Great post. I have been interested in trying to get good, unbiased information about the Miami condo meltdown. I’ve been following this over speculation problem a lot in the national news. The lawsuit situation is really interesting. Like you said, it all depends on the wording in the purchase contracts. But, as an exclusive (true) buyer broker office we have NEVER accepted any commission or bonus prior to a client closing on a new home or condo, even if the wording was in the contract. If you are working for a Buyer, it is just not a good practice to be paid before the closing. Mike
    http://www.homebuyersadvocate.wordpress.com

  2. Ouch, is all I can say. As a Realtor who was sued by my broker for the repayment of commissions from sales in an Orlando Condo/Hotel that never closed. These buyers deposits were retained by the developer as damages, yet the builder also went back to all the brokers who were paid 50% of the commission after all conditions in the contract were met. So not only were we hit with a declining market, slower sales, less commissions, and thus lower income, now we have to come up with $1,000′s of dollars to repay the developer. Many brokers had to file bankruptcy to avoid the hit.

  3. eric t

    Thanks Craig

    That may be the only option left to the company. I guess by your post that the developers are winning these lawsuits in Orlando. Down here Related group seems to have dismissed or settled the lawsuits thus far stemming from defaults at The Beach Club in Hallandale, but the closing rate at trump (probably many buyers will walk) may reinvigorate their demands….

    Ill report back when I know more

  4. eric t

    Mike:

    Your agency has undoubtedly made the right choice by not advancing any commissions for pre-construction. However, it would have been difficult for most to see the problem, at the time…. It will be interesting to see how the developers in Miami act… I imagine it will not be uniform…. right now I think the best we can hope for is a settlement…one attroney says that he has handled four cases and settled at fifty cents on the dollar.

    Many brokers and agents here will be in trouble, forced to close, if the developers push this to the end….and it is exasperating for me to see this trouble, which I am unable to resolve at this time, for my broker….

  5. Hi:

    I’ve been in the condo development business since around 1993 and I’ve worked for developers and as an outside broker. I’ve always negotiated launguage in my commission agreement so that it never becomes refundable to the developer should the buyer not close, no matter the reason. If they don’t do it my way, I won’t promote their project. Here the reason:

    I earn commission to bringing a ready, willing and able buyer to contract to purchase real property. From that point on, I cannot control the developer or the buyer, so why should I be liable to repay the commission I earned if either one or both of them fail to perform on their contract. If the buyer fails to close, the developer has other remedies in law it can pursue, such as enforcement of the contract through specific peformance or it can retain the entire buyer’s deposit as liquidated damamges and re-sell the property. So, they don’t get my commission. With the condo market at risk, I’m sure there will be an avalanche of lawsuits to recover broker commissions. If developers pursue this course of action, brokers will close ranks so that they’re not caught in this mess with new development deals, whenever that might be.

    P

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