In Thomas Hospitality Group, Inc. v Bree Enterprises, Inc., an unpublished Michigan Court of Appeals opinion, the owner of a bar and restaurant signed a 1-year exclusive listing agreement which provided, in pertinent part, that "if at any time after this Agreement expires, anyone sells the Property to anyone with whom or to whom anyone, during the Term of this Agreement, had negotiations for or discussions related to the sale or lease of the Property, sent a marketing package” the owner would pay a commission of 10% of the sale price. The agreement also provided that the broker could file a lien against the real property and a UCC financing statement against the personal property to secure the commission. Four days before the agreement expired, the broker was contacted by a prospective purchaser. Two days before the agreement expired, the broker e-mailed a marketing package to the purchaser. Over a year later, the prospective purchaser and the bar owner entered into an agreement for sale. After the purchaser paid $150,000 to the bar owner, the broker filed a claim of lien against the real estate and a UCC financing statement. The property closed, but the purchaser subsequently tendered back the property.
The broker sued and obtained a judgment for the 10% commission, but the trial court held the lien and financing statement were invalid because not filed before the end of the 1 year term. The bar owner appealed, arguing, among other things, that the contract contained an indefinite term, noting that, in theory, the broker could collect a commission “years, decades, or even centuries” after the expiration of the commission agreement, and thus ran afoul of the statute of frauds. The court held that, even if the time for performance (payment of the commission) was indefinite, the remedy is not to hold the contract unenforceable, but to presume a reasonable time for performance. The court determined that the less than 2 year period was a reasonable period of time.
According to the court, these types of clauses are commonly referred to as extension clauses and are routinely enforced. When entering into a listing agreement, a savvy seller will seek to insert a cutoff provision for the extension clause as well as an expiration of the listing term.
On the broker’s cross-appeal the court held that the broker was entitled to record the claim of lien and financing statement after the initial one year term of the agreement. The court held that the right to file the claim of lien and financing statement was intended to protect the broker’s interest in a commission, and thus the right to file persisted as long as the right to a commission persisted.
This is another case that highlights the need for careful drafting as well as an understanding of the ramifications of contract language before signing contracts.