How An Exclusive Representation Agreement Saved Me From My Own Client Early in My Career

I can tell you many, many stories about how well-written exclusive representation agreements have  positioned me again and again throughout my career to protect both the interests of my clients and myself.   In those instances, the threats against which I and my clients needed protection came from overly aggressive landlords who attempted to dictate the terms of my firm’s compensation and / or the lease or purchase terms to which my tenant clients would agree.  But, not in this case.

In this particular case, my firm’s solid representation agreement protected me, not from an overly aggressive landlord, but instead from my very own client.   And, yes, it was ugly!

Our firm was hired to represent a local division of a large national company.  We were engaged by the corporate parent via an exclusive agreement that was written by some very experienced and highly paid commercial real estate attorneys, who really knew what they were doing.

The local operating division had some autonomy in how they ran their business, which had previously included real estate.  Beginning with this particular project, the corporate parent sought to centralize certain operational functions, including how real estate was handled by all operating divisions.  Of course, the local operating division was unhappy about the planned centralization, as they had some  real estate expertise and in previous years had addressed their own real estate needs, with their corporate parent historically providing little more than tacit approval.

So, while I reported directly to the corporate parent through its real estate director, I had a dotted line to the local operating division.  Despite my efforts, and those of the corporate real estate director, to smooth relations with executives at the local level, the executives made very clear their dislike for the change in procedure. 

Of course, in straddling this delicate situation, I took great pains to be as thorough as possible, documenting everything.  I scoured the market, and based on directives from the corporate real estate director and the defined business criteria established by the local operating division, I presented all the available buildings that would support their needs, along with my recommendations. 

The corporate real estate director reviewed our list of properties and recommended that the local executives immediately inspect certain buildings, with visits to others being postponed until a later date.

Apparently, the local executives felt differently about how to approach this project.  Shortly after they inspected the buildings with me that were recommended by the corporate real estate director, the local executives chose to visit the second list of buildings without me.  They did so with another real estate broker…and, of course, they chose one of the most ornery and nasty brokers in the marketplace…of course!  And, to make matters worse, the local executives wanted to make a deal at one of those buildings…of course they did!

Being well-connected in the local market, it didn’t take long for me to find out what was going on.  I immediately reported what I’d learned to the corporate real estate director.  He told me he’d just received a phone call from the other broker, that he thought the other broker was a pompous jerk, and that he directed that broker to call me.  He confirmed that I’d already presented those buildings to him, including the one in which the local executives were interested in making a deal.  He then said that because of the nature of our contractual relationship, as described in the written representation agreement between our two companies, he would not deal with the other broker.  He had instructed the local executives to immediately terminate communications with that broker, warned them that they could have placed the corporate parent and the local operating division at risk of a lawsuit by that broker, and instructed them to only deal with me on matters concerning real estate.   The corporate real estate director asked me to accept a call from the other broker and told me  “to deal with that broker as I saw fit.”   I couldn’t wait for that call!

About twenty minutes later, my phone rang.  It was a particularly nasty ring, so I knew it was the other broker.  I answered the phone and almost before I go the phone to my ear heard the broker say the following: 

“Zezas?  This is Bill McCauley!  I took your client to 123 Main Street and spoke with your real estate director.  I demand to know how much of your commission I’m going to get!”

What a jerk this guy was!  I paused, took a long breath, and then waited a bit longer.  The broker raised his voice saying:

“Zezas!  Did you hear me?  How much of your commission am I getting?”

Don’t you love it when people think they can bully you by raising their voice on the telephone?  I smiled, lowered my voice, and calmly said the following:

“Mr. McCauley, here’s the way this is going to work.  I have a binding written exclusive agreement authorizing my firm to represent the client. The local executives had no authority to visit any property with you, and have been instructed by their senior management to no longer take your call.  Therefore, I hold all the cards and you have nothing.  Given your less than ethical approach, you’ll get nothing.  Have a nice day!” 

I hung up, and that was it.  I never heard from that broker about that deal again. Unfortunately, I would go on to hear from him on a few other occasions over the years.  Each conversation was just like the first…and, he never won!

We proceeded to close the above deal, not at the building the local executives visited with the other broker, but at one of the buildings they’d inspected with me.  In fact, the building they leased was one of the nicest buildings in that marketplace.  We negotiated very favorable terms for our client, collected an appropriately sized commission, and went on to pursue other business with their corporate parent.

The rules of engagement as defined in our representation agreement were clear.  Accordingly, that document protected our position and made it easy for our client to do the right thing, thereby protecting themselves and us.  As a result, we did a great job protecting our client, secured a favorable deal for them, put a bad guy in his place, made some money, and retained a solid client. 

My one piece of advice?  Always use a well-written representation agreement!

(Bill McCauley is a fictitious name I used for this article) 

Follow me at http://www.Twitter.com/RealStrat

Visit Real Estate Strategies Corporation at www.RealStrat.com

Check out the Executive’s Guide to Understanding Corporate Real Estate Transactions at www.TheExecutivesGuides.com

Where is Andrew Zezas?

 

 

Copyright Real Estate Strategies Corporation 2010. All Rights Reserved.

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THIS WORK IS DESIGNED TO PROVIDE PRACTICAL AND USEFUL INFORMATION ON THE SUBJECT MATTER COVERED AND REPRESENTS THE OPINION OF THE AUTHOR. HOWEVER, IT IS PROVIDED WITH THE UNDERSTANDING THAT THE AUTHOR IS NOT ENGAGED IN RENDERING LEGAL, FINANCIAL, ACCOUNTING, OR OTHER PROFESSIONAL ADVICE TO THE READER. IF LEGAL, FINANCIAL, ACCOUNTING, OR OTHER PROFESSIONAL ADVICE IS REQUIRED, THE SERVICES OF A COMPETENT PROFESSIONAL SHOULD BE SOUGHT. THE AUTHOR SPECIFICALLY AND EXPRESSLY DISCLAIMS ANY LIABILITY THAT MAY BE INCURRED AS A RESULT OF THE USE OR APPLICATION OF THE INFORMATION THAT IS CONTAINED IN THIS WORK.

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