Takeaways

  • Consider entering into written agreements to reduce potential legal risks.
  • Consult legal counsel to ensure compliance with and knowledge of applicable laws.
  • Establish policies and procedures to account for all funds and property relating to the brokerage’s transactions and affairs.

On September 15th, 2022, the Texas First District Court of Appeals ruled that an oral contract about commission-sharing between licensees of the same brokerage was enforceable and not barred by the state’s statue of frauds or the Texas Real Estate License Act.

The Texas statute of frauds requires an agreement to be in writing if it cannot be performed within one year from the execution date.  The Texas Real Estate License Act bars an action to recover a real estate commission unless the agreement was in writing and signed by the party against whom an action is brought.

In 2012, the broker and owner (“Owner”) of a Texas brokerage (“Brokerage”) hired a real estate agent (“Agent”) with Owner serving as Agent’s sponsoring broker. In 2014, Owner took a hiatus from the brokerage for an undefined period of time and entered into an oral agreement with Agent to manage the Brokerage in his absence and to split the Brokerage’s compensation.  The Agent’s duties included supervision, management, and development of the Brokerage for 90% of the Brokerage’s compensation.  In 2016, upon returning and discovering that the Agent had not set aside 10% of the Brokerage’s compensation, the Owner sued for breach of contract alleging $60,297.89 in unpaid commissions owed.

The trial court ruled in favor of the Owner and held that the oral agreement was enforceable and awarded him the unpaid commissions amount plus $51,180 in attorney’s fees.  The Agent appealed arguing that the oral agreement was unenforceable because of the Texas statute of frauds and the Texas Real Estate License Act.  The Court of Appeals held that the statute of frauds was inapplicable because the commission-sharing agreement could have been completed within one year if the Owner returned from his hiatus within one year.  The court highlighted that the Agent did not produce evidence indicating Owner’s hiatus would be beyond one year.  It also held that the Texas Real Estate License Act is inapplicable to compensation sharing agreements between licensees like the agreement between the Owner and Agent. 

The Court of Appeals affirmed the trial court’s decision to award unpaid commissions and attorney’s fees to Owner.

Nguyen v. Terra Nostra Realty, Inc., No. 01-20-00668-CV, 2022 WL 4240909 (Tex. App. Hous. [1st Dist.] Sept. 15, 2022).

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