In August 2005, when the residential real estate market in downtown Los Angeles was still hot, Standard Pacific Corporation signed a purchase agreement to buy a condominium project near Union Station from Lincoln Property Co. During escrow, the market deteriorated to the point that Standard Pacific was willing to forfeit a $4 million deposit to cancel the deal. In August 2006, Standard Pacific and Lincoln signed a agreement to settle their differences. Lincoln later changed the name of the project and leased the condos instead of selling them.Standard Pacific's broker, RC Royal Development and Realty Corporation (RC), was left out of the settlement and sued for a broker's commission under its written brokerage contract with the buyer. The trial court ruled in favor of Standard Pacific on a summary adjudication on the grounds that the close of escrow was a condition precedent to the obligation to pay a commission.
RC appealed and the Court of Appeal recently reversed the trial court in RC Royal Development and Realty Corporation v. Standard Pacific Corporation (2009) 177 Cal.App.4th 1410. It argued that its right to a commission ripened under the brokerage contract when Standard Pacific signed the purchase agreement with Lincoln. The brokerage contract provided that the broker would be entitled to a commission if buyer "purchased" the property and specifically defined "purchase" as "any and all acquisitions of any direct or indirect beneficial interest." The most interesting part of the published opinion is the Court of Appeal's discussion that the buyer acquired a "direct or indirect beneficial interest" in the property upon the signing of an executory contract -- in effect, there was a "purchase" of the property when the parties signed the buy-sell contract even though the escrow never closed. In the words of the Court of Appeal: ". . . [E]quitable title is a 'beneficial interest,' as it is one stick in the bundle of full legal rights to real property. Once Standard Pacific entered into a buy-sell contract containing all of the essential terms of purchase, it obtained equitable title."
If Standard Pacific had conditioned its obligation to pay a commission upon the close of escrow, the result probably would have been different. In that case it would not have been subject to the general rule of law that, "unless the contract provides otherwise, the broker earns his commission upon the principal's entry into a binding contract for a purchase subject to the brokerage contract regardless of whether the sale is consummated." (See, R.J. Kuhl Corp. v. Sullivan (1993) 13 Cal.App.4th 1589,1599-1600.
