Dangers of Failing to Properly Disclose Dual Representation

It appears real estate brokers in the District will be able to breathe a sigh of relief after the US Court of Appeals for the DC Circuit vacated and remanded a district court’s finding that a brokerage firm failed to properly disclose that it was representing both the landlord and the tenant in a real estate transaction, rendering the agreement from landlord to pay brokerage commissions unenforceable.

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Background

A dispute arose in December 2020 when Jones Lang LaSalle (JLL) filed suit against S.C. Herman, the landlord, for non-payment of a $781,000 commission on a lease agreement executed in 2018, with Spaces, the tenant, for commercial property in the District. S.C. Herman argued in district court that JLL failed to adhere to the Brokerage Act (the Act), which requires, inter alia (i) disclosure of dual representation to stand out “in bold lettering, all capitals, underlined, or within a separate box,”[1] and (ii) the written consent of both landlord and tenant.[2]

While the district court acknowledged that all parties to the transaction were put on actual notice of the dual representation, it nonetheless found in favor of S.C. Herman because JLL did not adhere to the strict requirements of the Act.

DC Circuit Court Repudiates Strict Interpretation

Vacating the district court’s decision, the DC Circuit Court held that a broker’s failure to adhere to specific formatting delineated in the Act is not a prima facie violation, and the Act’s requirements are not the only method for complying with the dual representation disclosures. In remanding, the DC Circuit Court has left the district court to determine whether JLL satisfied the requirement to disclose its dual representation.

Implications on Payment of Brokerage Commissions

In light of the DC Circuit Court’s more expansive interpretation of the Act, it is unlikely that landlords and tenants will be able to use this technicality to evade paying brokerage commission. In the original trial, S.C. Herman conceded that it received actual notice of the dual representation as well as a disclosure form of the dual representation (though the form was never signed by the parties). Given these facts, we expect the district court will determine the purpose of the Act (assuring both parties had knowledge of broker’s dual representation) was met, even if its technical requirements were not.

Key Takeaways

The DC Circuit Court’s interpretation of the Act suggests that brokers can satisfy dual representation disclosures by methods other than those expressly set forth therein, though the district court is still to decide if the disclosures given in this case were sufficient that S.C. Herman was properly informed. Going forward, brokerage firms should consider following the express guidelines in the Act as a ‘safe harbor,’ to avoid future disputes about adequate disclosure. However, failure to do so will not result in a de facto violation of the Act.

Our team will continue to monitor this case and provide updates as they become available. Please contact your ArentFox Schiff attorney or an author with questions or concerns.

Additional research and writing from Amelie Cekauskas, a 2023 summer associate in ArentFox Schiff's Washington, DC office and a law student at George Washington University.

[1] D.C. Code Section 42-1703(i)(2)

[2] D.C. Code Section 42-1703(i)(1)