Recently, a California appellate court ruled on the enforceability of commission-sharing agreements among real estate agents, which could have significant ramifications on how both agents and brokers share commissions earned for the sale of real property.
The case, Sanowicz v. Bacal, 234 Cal. App. 4th 1027, involved a Plaintiff (“Plaintiff”) who was a licensed real estate agent that entered into an agreement to share commissions with the defendant (“Defendant”). At the time of the agreement, both Plaintiff and Defendant worked for the same supervising broker (“Broker”). Plaintiff and Defendant memorialized their agreement in writing, by signing a C.A.R. Realtors Referral Fee Agreement, whereby they agreed to share commissions earned within two years for the sale of a particular property (“the Property”). However, the Broker did not sign the agreement.
Following this, Defendant left the Broker and sold the Property under the license of a new broker. After Defendant refused to share the sales commission for the Property with Plaintiff, Plaintiff filed suit.
Relying upon Business and Professions Code Section 10137, the trial court dismissed the action, holding that commissions cannot be shared directly between the agents, since the agreement was not signed by a broker.
On appeal, the Court examined the plain meaning of Business and Professions Code Section 10137 and determined that although this code section “closely limits” commission sharing among agents, it does not “forbid them entirely” since the statute only requires that a shared commission “be made through the broker[.]” The Court determined that the statute does not prohibit fee sharing agreements, “so long as the other restrictions on the manner of payment are maintained,” and as such, the Court reversed.
This decision may have a wide impact, not only on agents but also on supervising brokers. Most notably, the decision permits agents working under different supervising brokers to share commissions, so long as the other requirements of Business and Professions Code Section 10137 are satisfied, including that the commission is paid first to the broker, and then to an agent who can make the appropriate distributions.
Jeremy Danney is an associate at White and Bright specializing in real estate and business litigation. For questions relating to this article or for assistance with debt collection issues, please contact Mr. Danney at White and Bright (760-747-3200).