There has been significant litigation in the last few years over individuals trying to circumvent the requirements set out in the Texas Real Estate Licensing Act to recover a commission for the sale of real property in Texas. Section 1101.806(c) of the Texas Real Estate Licensing Act entitled “Liability for Payment of Compensation or Commission” is the statute of frauds provision of the Real Estate Licensing Act (hereinafter “RELA”).
Strict compliance is required with RELA and an agreement to pay a real estate commission must be in writing or it is not enforceable. Lathem v. Kruse, 290 S.W.3d 922 (Tex. App.– Dallas 2009, no pet.); see also Expo Holdings, LP v. Jacobson, 2010 Tex. App. LEXIS 6851 (Tex. App. – [14th Dist.] 2010, n.w.h.). RELA also limits the persons who can receive a commission and a person must be either a licensed real estate agent or an attorney to receive a commission for the sale of real estate in Texas. See Tex. Occ. Code 1101.806 (b). Therefore, in order to recover for a commission, the agreement to do so must be in writing and paid to either a licensed real estate agent or attorney. Despite the plain language of the statute, creative attempts continue to pop-up around Texas to try and circumvent the requirements of RELA.
Texas courts have strictly construed RELA because of the policy to protect the public and have insisted on compliance with the RELA regardless of the types of claims made. Texas courts also look to the substance, not the form of the contract at issue to determine the applicability of the RELA. McKellar v. Marsac, 778 S.W.2d 573, 575 (Tex. App.–Houston [1st Dist.] 1989, no writ) (holding that when RELA applies and its requirements are not met, courts have denied recovery when fraud, conspiracy, deceit, quantum meruit and breach of contract have been plead); See Trammell Crow Co. No. 60 v. Harkinson, 944 S.W.2d 631,634 (Tex. 1997) (rejecting tortious interference claim by broker against lessors because claim wholly derivative of unenforceable oral commission agreement and only translates into loss of expectancy of receiving a commission at the end of lease negotiations). Even when someone introduces a party and helps locate property and negotiate the sales transaction, they are not entitled to a commission unless they are a person entitled to recover a commission under RELA and the fee agreement is in writing and signed by the parties. See Expo Holdings, LP v. Jacobson, 2010 Tex. App. LEXIS 6851 (Tex. App. – [14th Dist.] 2010, n.w.h.).
The Texas Real Estate Licensing Act is designed to protect the public and rightfully, in my opinion, requires that any fee agreement be in writing and can only be paid to a licensed real estate agent or an attorney. The most valuable asset people own is their home and protections are necessary. The opinions in this blog are solely the author’s and any comments, suggestions and replies can be sent to firstname.lastname@example.org. Happy Halloween!