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Quote of the Day - My obligation is to obey the law and the law says that information given to me and given to the Government as the principal shareholder can't be disclosed to outsiders. - Mr. Howard
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In A Commercial Lease Transaction, Brokers Owe No Cross Duty To Disclose

When you're leasing commercial property, it's helpful to know who's on your side.  Especially when it comes to leasing agents, as we just found out in the case of Blickman Turkus, LP v. MF Downtown Sunnydale, LLC.  

Handspring wanted to rent space, and perhaps not surprising, MF Downtown Sunnydale had commercial space available.  Blickman was Handspring's leasing agent.  MF Sunnydale owned the land, and apparently contracted with Mozart Development to construct rentable space on the property on a "build to suit" basis for two buildings.  Mozart was represented in the lease transaction by a leasing agent, Commercial Property Services.  CPS was to be paid its commission by Mozart in two halves:  first when the lease was signed and the other half when the rent started. 

Before we get much further, let me point out one particular word above:  "commercial."  Quite unlike residential leasing, the law considers that commercial leases do not deserve the same type of protection that consumer leases need.  In fact, the law in California considers commercial landlords and tenants sophisticated and knowledgeable.  I also need to add a couple of other facts.  No contractual relationship existed between Blickman, on the one hand, and either CPS or Mozart, on the other hand.   

So, then, with that warning and information, perhaps the result of the case won't surprise you.

Apparently the tenant Handspring came to the landlord Mozart through a leasing agent, Blickman Turkus, who negotiated the lease.  Handspring signed the leases, and Mozart started building.  Mozart paid the first half of the commission due to both CPS and Blickman.  Mozart received and reviewed Handspring's financial data, and satisfied, started construction on the two buildings. 

During the lease negotiations, Blickman became aware that Handspring's financial condition was precarious and the two considered Handspring's exit strategies to get out of the leases. 

Blickman, however, never told either CPS, Mozart or MF Downtown Sunnydale of Handspring's financial problems.  Ultimately, Handspring was not able to move in, never paid rent and then terminated the leases.  Mozart refused to pay the second half of the commission to either CPS or Blickman.  Mozart also sought repayment of the $850,873.22 it paid Blickman for the first half of the commission for procuring the lease with Handspring. 

In the case, Mozart argued that Blickman had a duty to disclose Handspring's precarious financial condition, which Blickman denied and argued it had no obligation to do since it was not Mozart's agent, but instead was Handspring's agent. 

The appellate court agreed with Blickman's position, ruling that without a direct agency relationship between Blickman and Mozart, Blickman owed no duty to disclose Handspring's financial condition.  The court agreed with Mozart that since Handspring never paid rent, the second half of the rent never came due to Blickman.  The court also refused to award either side its attorneys fees and costs.

While the result of the case was a wash, there's at least one worthwhile lesson to take from it.  Contrary to the obligations of real estate brokers in residential transactions, a commercial broker for a party on one side of a transaction does not owe a duty to disclose to the other party.

Printer friendly page Permalink Email to a friend Posted by J. Craig Williams on Sunday, May 04, 2008 at 11:13 Comments Closed (0) |
 
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