Daily Business Review
Cover Story Real Estate
February 12, 2004
Commissions Are Sometimes Warranted In Condemnations
By Laurie Cunningham
Overturning 22 years of precedent, the Florida Supreme Court has ruled that a real estate broker is entitled to a commission for negotiating condemnations of a property - as long as he or she had an agreement with the seller to seek condemnation.
In its unanimous decision last Thursday, the high court held that under certain circumstances, a condemnation proceeding can constitute a sale for the purposes of assessing a brokerage commission. The ruling is a significant victory for brokers who help buy and sell commercial real estate, experts say.
The high court's ruling arises out of a fee dispute between Jacksonville-based St. Joe Corp., the largest private landowner in Florida, and Bruce McIver, an environmental lands real estate broker in Tallahassee. St. Joe had retained McIver to help arrange the sale of Gulf Coast property in Walton County to the state for a conservation preserve.
But St. Joe ended up giving the land to the state in an $84 million settlement of the state's eminent domain lawsuit. St. Joe then refused to pay McIver's claim for $1.7 million, his 2 percent commission. So he filed a breach of contract lawsuit.
The Supreme Court decision in the McIver case overturns the 2nd District Court of Appeal's 1982 decision in Dauer v. Pichowski, which held that a condemnation proceeding could never be considered a sale for the purposes of calculating a real estate commission. The Supreme Court's opinion held that general contract principles should apply to determine whether a seller and broker agreed to pursue condemnation as an alternative to a sale.
"If the seller and the broker agreed to, and did pursue condemnation as an acceptable substitute for a sale, then the broker should be entitled to a commission when the property is condemned," Justice Raoul G. Cantero III wrote for the court. "If, however, the seller specifically authorized the broker to pursue only a sale, then the broker would not be entitled to a commission for a condemnation."
The justices rejected St. Joe's argument that it never wanted the land condemned. They remanded the case for trail to determine whether McIver was entitled to commission based on general contract principles.
Real estate experts said the ruling offers brokers protection from clients who try to dodge payment. "In these big sales, things like this happen," said Kevin Tomlinson, a broker with Esslinger Wooten Maxwell in Miami Beach. "Very savvy people can manipulate the system to take away a broker's commission."
This problem tends to be more prevalent in commercial transactions because residential sales are largely governed by explicit listing agreements, Tomlinson said. "In the commercial business, a lot of agreements are done by handshake," he said. "So there has to be something in place to protect the way that commercial brokers do business."
In 1988, McIver, who long had represented St. Joe in real estate matters, entered into an oral contract to act as St. Joe's broker for the sale of 600 acres in Walton County. They discussed plans to sell the land to the state as part of its Conservation and Recreation Lands program.
But during negotiations, the state mandated that Walton County in 1993 to downzone the property from multiple units per acre to one unit per every five acres, which reduced the value of the land. A year later, the state offered St. Joe $25.7 million for the property. But St. Joe refused, saying it would accept no less than $50 million.
After sale negotiations with the state stalled, McIver said he proposed that St. Joe ask the state to condemn the land. McIver said he proposed this alternative because under condemnation proceedings, the state did not have to consider current zoning laws in assessing the value of the land. Instead, the state could base its offer on the best use of the land, then St. Joe could receive a higher price.
According to McIver, St. Joe's chief executive officer, Jacob Belin, told him to tell the state that St. Joe agreed to a "friendly condemnation," in which the state condemns the property with the consent of the seller for a negotiated price.
In September 1994, the state began eminent domain proceedings. Despite McIver's claims that St. Joe had secretly agreed to the condemnation, the company filed an objection to the condemnation in Okaloosa Circuit Court. A month later, the Okaloosa Circuit Judge Thomas Remington granted St. Joe's motion to dismiss the state's condemnation proceeding.
But within two weeks of the dismissal, the state and St. Joe settled the case. Under the terms of the settlement agreement, the state paid St. Joe $84 million for the property.
McIver then filed a complaint against St. Joe in Leon Circuit Court seeking recovery of his 2 percent commission. St. Joe refused to pay based on the 2nd DCA's ruling in Dauer. McIver sued for breach of contract, quantum merit and unjust enrichment.
In an interview, Kenneth Oertel, St. Joe's attorney, argued that McIver wasn't entitled to any commission because St. Joe never wanted the land condemned in the first place, and because McIver was not involved in the condemnation negotiations.
"He was the broker originally working on the deal with the Florida attorney general to sell the land to the state," said Oertel, a partner at Oertel Fernandez & Cole in Tallahassee. "St. Joe had no interest in selling to the state after the first sale fell through. It was the state that decided to condemn it." St. Joe, he said, only agreed to condemnation because it knew that the state would appeal the judge's dismissal of its eminent domain suit.
McIver's attorney, Stuart Huff, a Coral Gables solo practitioner, said his client had no written contract modifying the brokerage agreement with St. Joe because he was good friends with the executives and regularly did business based on a handshake.
For jury to decide
In February 2002, Leon Circuit Judge Terry Lewis summarily dismissed McIver's suit, rejecting McIver's argument. He held that McIver was not entitled to a commission because he didn't have a contract with St. Joe expressly stating that he was entitled to compensation for a condemnation.
But in September 2002, the 1st DCA reversed the dismissal on McIver's breach of contract claim. The 1st DCA ruled that it was for a jury to decide whether the condemnation actually qualified as a commissioned sale under a three-prong test established in Dauer.
Last week, the Supreme Court upheld the 1st DCA's decision but rejected the appellate court's requirement that McIver fulfill a three-prong test. The justices accepted McIver's assertion that St. Joe's decision to formally oppose the condemnation was merely a business move to drive up the state's offering price.
"Although at first blush opposition to condemnation proceedings appears inconsistent with consent, testimony showed that such opposition was sometimes used as a bargaining tool to negotiate a favorable price," Cantero wrote.
The Supreme Court remanded the case for trial to determine whether McIver was entitled to commission based on general contract principles. "Genuine issues of material fact remain about whether St. Joe and McIver modified the brokerage agreement to authorize McIver to pursue a state condemnation of the property as a viable alternative to a sale," Cantero wrote.
Now Huff will try to prove to a jury that the actions of McIver and St. Joe executives during negotiations with the state show that St. Joe had authorized McIver to change his sales tactic and pursue the condemnation.
"Under this opinion, the Florida Supreme Court has ruled that if the conduct of the parties indicates that they modified their contract, then the broker can be entitled to a commission," Huff said.