A decision issued in July by the Superior Court in Worcester County serves to remind investment property owners that hell hath no fury like a broker scorned.  

Ria K. McNamara, Inc. v. Forecast Shrewsbury Limited Partnership is a sordid tale of betrayal, where a broker procured a potential tenant for a Shrewsbury shopping center at the landlord’s behest, but the landlord instead leased to an existing tenant and refused to pay a brokerage commission. The broker had worked with the landlord since 2006 under a listing agreement, giving the broker exclusive rights to lease space in the center. Both parties were experienced in commercial real estate. The landlord had agreed to pay a 50 percent commission for leases to existing tenants.

The landlord’s vacant space was adjacent to an upscale supermarket. He offered the space to the supermarket, but the supermarket declined. However, the landlord knew that the supermarket feared having a medical office nearby, and he exploited this knowledge. He instructed the broker to display a prominent sign on Route 9, advertising medical office space for lease. The broker found a dental office tenant for the space, wrote a letter of intent, and with the landlord’s encouragement, prepared a draft lease. After raising the broker’s hopes that a final signed lease (and commission payment) was imminent, the landlord suddenly reversed course and gave the supermarket a right of first refusal on the space.

A Warning

The landlord warned the supermarket that he was about to lease the space to a dentist. Facing this predicament, the supermarket capitulated and signed a lease for nearly double the rent that the dentist was willing to pay. After executing this gambit to perfection (with the broker as an unwitting accomplice), the landlord refused to pay the broker a commission. As one might expect, the broker sued the landlord for breach of contract, fraud, and unfair and deceptive practices. The broker hoped to recover multiple damages and attorneys’ fees, in addition to the unpaid commission.

In deciding the dispute, the Superior Court summarized case law on when a property owner must pay a brokerage commission. The leading case in this area is Tristram’s Landing, Inc. v. Wait, where the Supreme Judicial Court ruled that generally a broker does not earn a commission unless the broker procures a buyer, the owner and buyer enter into a binding contract, and the buyer completes the transaction. This general rule also applies where a broker finds a tenant. However, the Superior Court recognized exceptions to this rule, where brokers locate buyers or tenants, but the owner undermines the deal in bad faith. According to the court, in those situations the broker nevertheless earns a commission. The Superior Court had little difficulty characterizing the Shrewsbury landlord’s dealings with his broker, the supermarket, and the dental office, as bad faith.  

The court noted that the landlord “sought to profit from [the broker’s] work and exertions” and “baited [the supermarket] to take the space using the leverage of a prospective medical use tenant moving in next door.” The court ruled in the broker’s favor, requiring the landlord to pay her a $19,000 commission. However, the court declined to hold the landlord liable for fraud or deceptive business practices, denying the broker multiple damages and attorneys’ fees.

Although she won her claim for a commission, the broker remains unsatisfied, and is appealing the Superior Court’s denial of multiple damages and attorneys’ fees. In any event, property owners should think twice before leading brokers down a primrose path, only to abandon them later without paying a commission.

Christopher R. Vaccaro is an attorney in Stoneham. Email: cvaccaro@lgllp.com