by Ron Davis
An imprudent payment of a fee to two real-estate brokers may never be recouped by the owners of a Louisiana shopping center.
The shopping center is Pontchartrain Place in New Orleans, and the brokers received the payment as a finder's fee. The owners of the shopping center had retained the brokers--both of which were from out of state and unlicensed in Louisiana--to locate a tenant to lease space at Pontchartrain Place. And they were obviously pleased when the brokers did in fact find a likely candidate, though also from another state.
The resulting negotiations with the prospective tenant were, however, straightforward and routine. And the tenant eventually signed a 10-year lease, which over that full term would have paid the shopping center owners more than $1.5 million.
As part of that lease agreement, the brokers were to receive a finder's fee of 2.5 percent of the total amount of the rent, paid in monthly installments. But the appreciative shopping center owners instead rewarded the brokers by paying them an immediate lump sum of $18,972.20, representing half of the total amount of the finder's fee. Plus, the owners also agreed to pay the brokers the remaining half in 12 equal monthly installments during the first year of the of the lease.
The brokers readily accepted the generous offer of the shopping center' owners. And the lump-sum payment was made.
Within months after consummation of the deal, however, the tenant defaulted on the lease and ceased making rental payments. The shopping center owners then sued the brokers to recover the finder's fee.
A Louisiana court ruled that the brokers had been "unjustly enriched" and must repay the finder's fee, prorated for the months that the tenant had actually paid rent. The brokers appealed, arguing that no strings were attached to payment of the finder's fee.
A Louisiana appellate court agreed with the brokers and reversed the ruling of the lower court. Explained the judges, "We find it incredible that the shopping center owners would enter into a 10-year lease with an out-of-state corporation and not have some sort of recourse if that corporation defaulted on the lease.... Moreover, we find it inconceivable that the shopping center owners...would voluntarily agree to pay 10 years of commissions up front to unknown, out-of-state brokers without having any recourse against anyone in the event of a default of the lease." (Pique Severn Avenue Partnership v. Ballen, 773 So.2d 179 [La.App. 5 Cir. 2000])
Decision: November 2000
Published: January 2001