BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
There are many advantages to real estate agents joining teams to sell real estate. Newer agents can learn from successful and more experienced agents. Agents with a lot of business are able to manage that business with the extra help of licensed team members and a support group. Agents specializing in listing properties have buyer agents who can separately represent buyers without establishing a single-agent dual agency. Agents are able to take vacation or time off by having a teammate who can cover for them. While teams can be very successful, there are also significant concerns with regard to establishing teams and entering team agreements.
As with any other partnership, if a team relationship does not meet the expectations of both parties, members of the team could leave. Disputes can arise between team members over compensation, particularly when agents leave teams. Recently, Broker Risk Management (“BRM”) has experienced a number of issues with regard to team members leaving teams and disputes arising between the team members regarding leads, compensation, and non-compete. Please consider the following scenarios:
SCENARIO NO. 1: I was a newer agent and signed a team agreement with a very successful team. The team agreement contained a non-compete clause. I have decided to leave the team and work on my own as an agent with the same brokerage. However, the team has taken the position that I cannot sell real estate on my own and must act through the team given the non-compete clause in the team agreement. Is that provision enforceable?
RESPONSE: No. In the State of California, non-compete provisions are narrowly construed and generally, only enforceable if they are for a limited period of time and are primarily in connection with when a business is being sold. In the instance of a team member leaving a team, a non-compete clause is not likely to be enforceable. Moreover, the public policy in California is that every citizen is entitled to work in their given profession. A non-compete clause prohibits a citizen from working in their chosen career.
SCENARIO NO. 2: I am a team leader. One of my team members seeks to leave. The team agreement is for an indefinite period of time. Can I legally force the team member to stay with the team and working with us?
RESPONSE: No. Teams cannot force team members into staying with their teams. In addition, team agreements need to have termination dates, but can have provisions with automatic renewals.
SCENARIO NO. 3: I signed an agreement to work with a team. That agreement did not have a termination date. The agreement also stated that every client I worked with, even if I generated the client while I was a team member, is an asset of the team and the team is entitled to a percentage of my commissions forever. Is that enforceable?
RESPONSE: No. As indicated above, team agreements, just as every other agreement, must have a termination date. Moreover, clients are not properties of teams; clients have the right to select the agent that they wish to work with. If a client was specifically referred by a team to an agent and the team agreement provides for the team’s participation in the commission, that agreement will likely be enforced. However, if a team member leaves a team and the client, without solicitation by the agent, chooses to work with the agent in the future, it is not likely that the team will be entitled to a commission in the future.
DISCUSSION: When establishing or joining a team, it is extremely important that agents have solid team agreements drafted on their behalf. A starting point is CAR’s team agreement form (TEAM). It is recommended that if the team agreement is complicated or beyond the scope of the CAR agreement, the team leader(s) should consult with counsel before drafting the agreement.
Agents drafting team agreements without consulting with counsel may include unenforceable provisions in their agreement without realizing it. If team agreements have unenforceable provisions, it leads to disputes. For example, team agreements must have termination dates. However, they can automatically renew on an annual or other basis. Team agreements may not contain non-compete clauses prohibiting team members from working in the real estate industry if they leave the team. Likewise, clients do not belong to the team forever. At some point, a client may choose who the client works with and depending on the circumstances, commissions may not be owed to teams.
PRACTICE TIPS:
- When forming a team, please ensure that you have a proper and legally enforceable agreement drafted to use in the future. Agents can start with CAR’s TEAM agreement but if that form agreement does not work for your planned team, you should consult with your own attorney. It is worth the investment in attorney’s fees to have a legally enforceable agreement prepared.
- If you are joining an existing team and are signing a team agreement, you may want to retain counsel to review the agreement to ensure you fully understand all the terms and commitments.
- Team agreements need termination dates. However, team agreements can renew automatically each year.
- Non-compete clauses are unenforceable in the State of California.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is an attorney-client privileged communication for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management LLP. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices