There is a regular debate between real estate professionals licensed under the Real Estate License Act (RELA) otherwise known as real estate brokers and licensed lawyers in this state. The topic of lawyers receiving commissions or compensation on real estate transactions came up again this week.
The issue came up again primarily because of an opinion that was released from the Dallas Court of Appeal. It’s important to remember that the decision only binding, precedential value on the courts in the Dallas district. However, the decision is persuasive authority throughout Texas.
The case is Banowsky v. Schultz (Dallas Ct. App. Feb. 10, 2016). I’ve linked the case for your convenience.
Banowsky was a licensed attorney in Texas. He was not a licensed real estate broker in any state. He had a particular expertise and relationships related to acquiring movie theatre real estate.
Schultz was majority owner of Studio Movie Grill (SMG). SMG was expanding and was interested acquiring new locations.
In February of 2008, Schultz and Banowsky entered into a letter agreement whereby Schultz agreed to pay Banosky $100,000 for each property Banowsky identified to Schultz that became an SMG facility whether by lease or similar agreement or acquired in some other way.
In May 2008, Banowsky identified the “Sonora Property” to Schultz. Schultz decided the Sonora Property was not a viable opportunity for SMG. In April 2009, Banowsky terminated the letter agreement and no longer identified any other properties to Schultz.
In 2010, Schultz hired a commercial real estate broker to help identify potential locations for SMG to acquire. Schultz was shown the Sonora Property again, but this time he decided the circumstances had changed such that it now was a viable opportunity for SMG. Schultz leased the Sonora Property in the name of a new LLC and operated an SMG-branded theatre there.
As you can guess, this case is about whether Banowsky is entitled to the $100,000 from Schultz.
The appellate court in Dallas sided with Banowsky and said he was entitled to the $100,000 AND his attorney’s fees from Schultz. So the answer to the question “Can an attorney receive a commission or compensation for a real estate transaction without being a licensed broker?” is a resounding YES.
But wait, there’s more.
But if it were that clear-cut, why waste blog space discussing it? Because that isn’t the real question you had when you started reading. What you really want to know is if a Broker can or has to split a commission with an attorney who is not a licensed broker or agent under RELA.
First, a couple of ground rules before we dig into how RELA answers the real question.
Who needs to be licensed under RELA?
RELA has a long laundry list of activities related to real estate in this state that require a license if you are seeking compensation for doing any of the following:
Here’s where the confusion sets in. RELA does NOT apply to attorneys licensed in Texas. (Tex Occ. Code Ann. § 1101.005). So essentially, a lawyer does not have to hold a real estate license in this state in order to be compensated for doing any of the activities listed above.
RELA goes on and lists out certain activities which are PROHIBITED by license holders in this state. One of the activities brokers are prohibited from doing is sharing commission or compensation with anyone who is not licensed under RELA for doing any of those broker activities. (Tex. Occ. Code Ann § 1101.651(a)).
“Bonnie Broker” regularly cites this provision as the reason why she will not share or split commissions with a lawyer who is not a broker. Lucinda Lawyer counters back that RELA does not apply to her and so she is entitled to a split.
So who is right?
I believe the Texas Real Estate Commission (TREC) and Bonnie Broker are right. Lucinda Lawyer is guilty of selective reading. While it is true that lawyers are exempt from the provisions of RELA, a broker is not. In fact, everything a broker can and can not do is listed out in the statute pretty clearly.
So how do these two ideas work together? A broker is prohibited from splitting a commission with anyone, including a lawyer. But, a lawyer is entitled to enter into any kind of commission or compensation agreement with a buyer or seller separately even if the buyer or seller isn’t the lawyer’s law services client.
Let’s break that down into an example.
Suzy Seller lists her house with Bonnie Broker. She signs the listing agreement and agrees to pay Bonnie an agreed commission upon completion of the sale.
Suzy calls her friend Lucinda Lawyer and tells her about her house for sale. Lucinda says to Suzy, “I might know some people who would like to buy the house. If I can find a buyer for you, would you pay me $XXX.XX or Y% of the sales price? This is above and beyond what you agreed to pay Bonnie.” Suzy agrees. Lucinda and Suzy sign a written agreement with those terms.
The deal closes with Lucinda’s buyer, and at closing; Suzy pays Bonnie as agreed, and she pays Lucinda as agreed. Notice Bonnie did not share her commission with a non-licensed broker. Rather, Lucinda received separate compensation for acting as a broker without a license as she is allowed to do in Texas.
Bonnie is also permitted under RELA to rebate a portion of the commission to Suzy which Suzy could use to pay Lucinda. That is not considered sharing of a commission with a non-licensed broker.
Keep in mind that Lucinda could have also contacted her potential buyer first and entered a written agreement with the buyer for $XXX.XX or Y% of the sale to be paid by the buyer at closing and this would have been allowed as well.
Next time the question of whether a lawyer can receive compensation or a commission on a real estate deal comes up, now you know the answer is Yes–IF–
UNLESS the lawyer is also a licensed real estate broker.