Tuesday, April 21, 2009

Legal Misfortune: Always Be Aware of Potential Broker Fees

A client was looking to purchase a specific type of business (or, in the alternative, a suitable property upon which to build his new business) and engaged a broker on an exclusive basis in order to assist him in identifying and locating a business or property. According to his agreement with the broker, the brokerage fee was to be paid by the seller and/or any brokerage firm engaged by a seller in connection with the proposed transaction; however, the closing of any transaction was conditioned upon such seller or other broker agreeing to pay the fee.

The seller had also engaged a broker to locate a potential buyer for the property on behalf of the seller. Soon thereafter, the client viewed a business property that he subsequently decided was suitable for his needs. When our client viewed the property, he signed an acknowledgement from the seller’s broker stating that he had viewed the property. The client determined that he wanted to buy the business in question and the seller’s counsel set out to draft a purchase agreement. When we received the initial draft of the agreement, however, there was no mention of the seller’s broker or the fact that they were owed a fee as a result of the transaction. Because of this, there was a risk that the seller’s broker could delay or otherwise threaten to disrupt the closing of the transaction unless and until its fee was paid.

After reviewing the agreement and raising the issue with seller’s counsel, it was discovered that seller was exploring ways to not pay its broker since it already had to pay the fee owed to the client’s broker. Not only did this threaten the closing, but exposed the client to a potential suit after the closing from the seller’s broker. It was decided that the only way the client would allow the deal to move forward was if the seller agreed in the contract to pay all broker fees at the closing and to indemnify and hold the client harmless from any and claims, suits and actions that any broker may bring after the closing seeking to paid a fee as a result of the sale.

Seller agreed with the conditions and the transaction was successfully closed. Without an attorney to review the agreement and advise the client of his options regarding the broker fees, the client may have faced a lawsuit either before or after closing from a broker looking to rightfully receive his fee.

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