Landlord Can't Use Minor Violation as Excuse to Not Pay Retainer Fees

In addition to commissions on actual leases closed, many landlords agree to pay their real estate brokers a monthly retainer. This is an effective way to ensure the availability of brokers you know and trust.

But retainer fee arrangements can also make it harder to break up when and if things go sour. Like marriages, every broker-client relationship is different. The one thing that’s certain is that you can’t rely on minor infractions that a broker may commit as justification to terminate a retainer fee.

Broker Fails to Submit Monthly Reports

A shopping center owner learned this lesson the hard way. It hired a broker to lease space in the center. The brokerage contract required the owner to pay the broker a monthly $10,000 retainer fee. The owner soon became disenchanted with the broker and stopped making retainer fee payments for four months. So, the broker sued the owner for violating the contract. The owner contended that the broker breached first by failing to submit monthly progress reports.

The Minnesota court sided with the broker, finding that the progress report issue was basically just a trumped-up excuse. The contract said that the broker had to submit “progress reports in form and content required by [Owner] to inform [Owner] of [Broker’s] activities.” But there was no evidence that the owner ever asked for the reports, let alone advised the broker what “form and content” it required. So, even if the broker did breach the contract, it was obviously just a minor violation and not enough to justify not paying retainer fees.

And even if the progress reports really were a big deal, the owner waived its rights by never once complaining to the broker for submitting them. It was only after the broker filed the lawsuit that the owner raised the issue.

Bottom Line: The owner had no excuse not to pay the broker its retainer fees and had to fork over $40,000.

• Urban Retail Properties Co. v. Talisman Brookdale, LLC: No. A03-1877 (Minn. Ct. App. Aug. 10, 2004)