Plain Speaking from a Lawyer
James A. Hochman, has represented commercial real estate brokerage firms, landlords, tenants, and investors for 31 years, specializing in all phases of Commercial Real Estate transactions, negotiations and litigation. He is a specialist in broker lien law and license portability legislation, having been instrumental in the drafting and adoption of state statutes across the nation. Mr. Hochman is the real estate partner at Coman Anderson PC, and is also an Associate Member of SIOR. He can be reached at email@example.com, or at (630) 946-1666.
Post-Term Protection for Expired Listing Agreements
Welcome to my new quarterly column for the SIOR Professional Report. I hope to address legal issues which commercial real estate
professionals encounter, and to offer my observations. Call these columns “Do’s and Don’ts,” or “Legal Lessons I Have Learned,” or
“Topics of Current Interest.” The scope of this forum is broad, but its primary goal is to provide useful information to all of our readers.
The issue of post-term protection for expired listing agreements is surely one which fills the annals of case law. Commercial real estate
brokers are well advised to spend time and effort on crafting (or negotiating) a provision in their listing agreements which will protect the
broker’s right to a commission under the following circumstances: the listing term is ending, but a deal could still be completed somehow
which started during the listing term, but will likely conclude after the listing term has expired.
First, define your “Protected Prospects” carefully – and broadly – so that you are permitted to register with the Seller or Landlord “all
of those parties to whom the Property was submitted during the term.” Don’t limit this group by requiring that the prospects be procured
by you, or that you showed the Property to the prospect.
Second, expand the protected list with the characterization “or an affiliate, subsidiary, or other entity formed by or related to the
Prospect.” Most buyers of commercial properties these days are counseled to hold title to the property in a single asset entity, one which
may be named and formed just days before closing.
Next, if your listing agreement is for sale and lease, make sure your post term protection covers both. Some deals start as a lease but
become a sale. Others start as a sale but become a lease.
Allow a reasonable post term protection period in which negotiations may resume, continue, or commence and thereafter continue leading to consummation of the sale or lease of the property. Note that you will choose a finite period for negotiations to start or resume, but
take special care to word your provision so that your right to the fee continues “so long as negotiations continue leading to sale or lease.”
Experience shows that if you negotiate a flat period of 90 days, the lease might not be signed until day 91 or later. Closings can be delayed
for reasons beyond your control (e.g. financing issues, environmental due diligence), so don’t accept an outside or “Drop Dead” date.
Take care to register your prospects timely (usually within a short period after expiration of the term), and don’t snooze through that
period. Don't fall for the old line “the listing extension is in the mail,” and fail to register prospects, and thus allowing your registration
period and post term protection rights to lapse.
You must send your registration letter by a medium where you can prove both sending and receipt, such as: (i) certified mail, return
receipt requested; (ii) overnight mail with a reputable service; or (iii) fax or e-mail with confirmation of transmission and receipt. I
litigated two cases recently. In one, the registration letter was sent by regular mail, leading to the usual swearing contest of “I sent
it,” vs. “I never received it.” In the other case, the broker sent the registration letter by certified mail and fax – and the issue was
I do not recommend that your registration letter have an acceptance line for
the owner. You should have the right to register certain defined prospects (and
their related entities). Don’t tempt fate with an owner acceptance line. The
owner may refuse to sign or dispute whether all registered parties are qualified
prospects. Remember that if your listing is ending, and you will be replaced
by a new listing broker, there could be resistance to excluded parties in the
new listing. You and the owner may end your term cordially (“we can still be
friends”), but the owner’s head has been turned by his new listing broker. You
need to protect your rights to harvest the fruit from the seeds you have sown.
Every broker’s listing should reflect his own business and legal terms, and
different listing assignments may merit more or less post term protection.
However, the side bar to this column offers specimen post term protection
language for your consideration.