While it is accepted in the real estate world that licensed real estate brokers may, with very limited exceptions, share commission payments, it has always been less than clear under what circumstances licensed real estate agents can share such commissions. In fact, it is difficult to find case law in any jurisdiction directly addressing the issue of agents splitting commissions. However, in February, California’s Second District Court of Appeals weighed in on the issue in Sanowicz v. Bacal, 2nd App. Dist., February 26, 2015, and the answer may have a significant effect on not only agents sharing commissions, but on their supervising brokers as well. Moreover, in light of the dearth of case law on the subject, Sanowicz may become a persuasive authority for other jurisdictions throughout the country.

The Case

In Sanowicz, the plaintiff, a licensed agent, alleged that he had entered into various oral and written joint venture agreements with his fellow agent, Bacal, to evenly split commission payments due to either of them. Sanowicz and Bacal allegedly initially entered into these agreements while working under separate brokers, continued to enter into additional agreements while both were working for Keller Williams, and further continued this practice while Sanowicz remained at KW and Bacal moved to Sotheby’s — both of which are brokerages practicing nationwide.

Principally at issue in the case was a $14 million land transaction that began when the parties were at Keller, and closed after Bacal had moved to Sotheby’s. The sale resulted in a $210,000 commission to Bacal, paid to him through Sotheby’s.

Sanowicz filed suit for 50 percent of Bacal’s commission. Bacal demurred, arguing that under the state’s Business and Professions Code Section 10137, which regulates the actions of real estate brokers and agents, the alleged agreements were illegal because no broker had signed or even consented to any of the alleged fee sharing agreements. Conversely, Sanowicz argued that there was no such requirement under the statute, and that oral and written fee sharing agreements between agents are absolutely enforceable once the supervising broker has received the commission at issue — which was the case here. The trial court granted Bacal’s demurrer under Section 10137, without leave to amend, and Sanowicz appealed.

On appeal, the court noted that the issue — application of Section 10137 to commission sharing by agents — appeared to be one of first impression. The court turned to the plain meaning of the statute and the intent of the legislature noting, the statute addresses the rules on payment of compensation by brokers to agents — and by agents. It closely limits these activities, but it does not forbid them entirely. In stating that an agent may pay commission to another licensee, the Legislature did not limit the payee to a licensed broker; instead it required that any such payment be made “through the broker” thus permitting payments to be made to licensed real estate professionals, whether agents or brokers. What the Legislature limited was the manner of payment, requiring that any such payments must be “through the broker under whom he or she is at the time licensed.”

As such, the court reversed and remanded, holding that agents could share fees, so long as those fees flowed from commissions already paid to the supervising broker.

Potential Impact

While the Sanowicz case is obviously important with respect to agent-to-agent fee sharing agreements, it also has potentially important impacts on supervising brokers. In fact, in addition to his arguments above, Bacal also argued that Sotheby’s, Bacal’s supervising broker at the time in question, was an indispensable party to the suit. Rather than rule directly on this contention, the court left the issue for another day stating, “…instead of developing the ‘indispensable party’ argument, he reargues his contention that Section 10137 makes Sanowicz’s claim illegal. That is not an argument about whether Sotheby’s (or KW) is indispensable.”

This technical omission in the Sanowicz ruling is obviously important to brokers and their attorneys, because at some point, and possibly soon in light of Sanowicz’s amended complaint, the courts will directly consider whether or not brokers are indispensable parties to these types of agent fee sharing disputes. No doubt, this analysis will soon be followed by additional inquiries throughout the United States with respect to such agent/broker rights and relationships, especially as large national and international brokerages are concerned. In preparation for that inevitability, brokers would be wise to consult counsel as to whether or not to allow such agent to agent agreements in their office, and if so, to establish clear protocols for their preparation, review, and consent to such arrangements.

Commercial Investment Real Estate, September/October 2015