Exclusive Right-to-Sell and Right-to-Lease Agreements
a. General Characteristics
An exclusive right-to-sell listing agreement gives the listing broker the right to a commission if the property is sold during the listing period by anyone, including the seller. Lowe v Loyd (1949) 93 CA2d 684. The leasing equivalent of an exclusive right-to-sell listing may be called an “exclusive right to represent seller in sale or lease listing agreement,” but the same rules generally apply. The broker need not be the procuring cause (i.e., the cause or instrument leading to the accomplishment of the prime object of the agreement) and need not even have contacted the buyer. Berzon v U.L.C. Corp. (1969) 274 CA2d 690.
Listing agreements are strictly construed against the broker. Courts will not find an exclusive listing agreement unless it is expressly so designated. E.A. Strout W. Realty v Gregoire (1950) 101 CA2d 512. An exclusive right-to-sell or right-to-lease agreement must contain a definite termination date. If it does not, the broker will be subject to disciplinary action by the Real Estate Commissioner if the broker seeks compensation under the agreement. Bus & P C §10176(f). . Provisions in many exclusive right-to-sell and right-to-lease agreements entitle the broker to the full commission if the client withdraws the property from the market (Baumgartner v Meek (1954) 126 CA2d 505) or does something to the property that makes it unmarketable or substantially reduces its marketability (Alderson v Houston (1908) 154 C 1). The validity of such a commission-on-withdrawal clause was upheld in Blank v Borden (1974) 11 C3d 963. See §7.21.
Many exclusive right-to-sell or right-to-lease listing agreements also contain a “safety” or “protection” clause that entitles the broker to the commission if the property is sold or leased within a stated period after the listing expires to a party identified during the term of the listing.
TIP: Customers and Brokers should pay close attention to the termination date in an exclusive listing agreement. Any extensions to the listing period should be clearly memorialized or agreed to by both the broker and the principal. If a broker’s exclusive listing agreement formally expires but the broker continues to search for buyers based on an informal “understanding” from the principal that the identity of the ultimate buyer after the listing’s termination date would still entitle the broker to a commission, the principal can refuse payment of the commission if the buyer was not identified or introduced to the principal during the exclusive listing period or any formal extension. Even if the principal knows that the broker is still actively looking for a buyer after the exclusive listing expires, without a documented formal extension of the listing, the broker is not technically entitled to a commission.
TIP: Brokers should determine how title is held in the property to be sold before entering into an exclusive listing agreement, in order to verify that the person signing the listing agreement as “seller” is the proper signatory. If title to a property is vested in multiple parties (e.g., husband and wife, tenants in common, or co-trustees), the broker should have all of the owner parties sign the listing agreement, with the understanding that all such signatures will be required on the ultimate sale agreement and vesting deed.
TIP: Brokers considering marketing a property as “Coming Soon” should ensure that proper disclosures are made to the seller. See paragraph 7C of the form Residential Listing Agreement: Exclusive Authorization and Right to Sell (CAR Form RLA), which provides an option for seller to opt out of authorizing the broker to utilize “Coming Soon” status. The California Department of Real Estate (DRE) has cautioned brokers on the risks of “Coming Soon” marketing in connection with a broker’s fiduciary responsibilities, and provided tips on best practices for listing agents. See ‘Coming Soon’ Advertising: Be Sure to Maintain Fiduciary Responsibility for Your Client or Face Civil and Regulatory Liability, 77 DRE Real Estate Bulletin 8 (Winter 2018), available at https://www.dre.ca.gov/files/pdf/reb/rebwinter_18.pdf.
b. Specific Characteristics
An exclusive right-to-sell or right-to-lease listing agreement should contain the following elements:
- Authority to sell or lease. This provision identifies the parties to the agreement, the subject property, and the term of the listing. It may also include warranties of the principal’s legal ownership of the property and the absence of any clouds on title and may address the scope of the broker’s authorization and retention, e.g., whether the transaction sought is a sale or lease.
- List of inclusions and exclusions. This provision lists permanent improvements, fixtures, or personal property that will or will not be included in the transaction.
- Compensation rights, including
- Buyer or lessee actually procured. This provision states that the broker is owed a commission if any “ready, willing, and able” buyer or tenant is procured (see §2.24) by the broker or any other person, even if the transaction does not close .
- Protection or safety clause. This clause is also sometimes called a “sunset” provision and provides that a commission is owed to the broker if the principal sells or leases the property within a given period of time after the end of the listing period (or cancellation of the listing) to a buyer or tenant introduced by the broker or any cooperating broker .
- Withdrawal of property from market. If the seller cancels the listing, a commission may still be owed under the agreement under specific instances, such as when an offer has been presented and the seller fails to respond or if the property is under contract at the time of withdrawal.
- Duties of principal and broker. Typical duties require the broker to exercise reasonable efforts and due diligence to market the property, order reports and disclosures, and advertise and provide information on the property in various media, including a multiple listing service (MLS) or private subscription service . The principal usually must agree to consider all reasonable offers presented by the broker, make the property available for showing at reasonable times, and provide the broker with all the property information requested .
- Multiple Listing Service or other subscription listing service. Both commercial and residential listing agreements generally require that the property be advertised in the local MLS or subscription service for the area unless the principal signs a form instructing the broker to withhold the listing from the MLS.
- Agency. Listing agreements for residential property contain a brief description of agency and dual agency and note that if the property consists of less than four residential units the seller must receive a “Disclosure Regarding Agency Relationships” form before executing the listing. Commercial listing agreements generally describe the agency relationship, but omit mention of the statutory form.
- Excluded persons. Less common in residential agreements than in commercial agreements, the listing may include a list of persons and entities that the broker has cultivated while marketing the property. If a new broker is retained during the sunset period of the listing, a transaction with any of these “excluded persons” may result in commissions owed to the original listing broker .
- Dispute resolution. Standard residential exclusive right-to-sell listing agreements generally provide for mediation and/or arbitration of broker and principal disputes. The form Residential Listing Agreement: Exclusive Authorization and Right to Sell (CAR Form RLA) provides for mandatory mediation of certain matters, and also provides that the parties may arbitrate disputes (using CAR Form ARB).