Court of Appeals Approves Verbal Co-Broker Referral Agreement if Performed Within One Year
On November 23, 2012, the Arizona Court of Appeals ruled that a verbal referral agreement between two real estate brokers was not enforceable because the verbal referral agreement could not be performed within one year as required by the Statute of Frauds.
Broker A entered into a verbal referral agreement for a referral program with Broker B. There was never a written referral agreement for the referral program.
Under this verbal referral agreement, if a buyer that was referred by Broker A to Broker B ever purchased any property through Broker B, Broker B was obligated to pay a referral commission to Broker A. There was no termination date. In other words, even if the buyer referred by Broker A purchased a property twenty years later through Broker B, a commission would be owed under the verbal referral agreement.
After one of Broker A’s buyers purchased a property through Broker B, Broker A demanded a commission. When Broker B refused to pay a commission, Broker A filed a lawsuit for breach of the verbal referral agreement.
The Court of Appeals first ruled that the Statute of Frauds does not prohibit the enforceability of verbal co-broker agreements between two real estate brokers. The Court of Appeals then ruled that the Statute of Frauds does however, prohibit the enforceability of any verbal agreement that will not be performed within one year from the date of the making of that verbal agreement. Therefore, the verbal referral agreement between Broker A and Broker B which had no termination date was unenforceable.
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