If an agency agreement is set to expire while a property is under contract, does it need to be extended?

QUESTION: Many of my pending transactions are being extended due to the COVID-19 outbreak. As a result, some of my agency agreements on Standard Forms 101 and 201 are set to expire prior to the new settlement dates agreed to by the parties. If one of my agency agreements is going to expire during a transaction, does it have to be extended? Am I allowed to continue representing my clients? Am I still entitled to my commission?

ANSWER: If at all possible, you should extend any agency agreement that is set to expire during a transaction.

We have previously written here that if an agency agreement on Form 101 (“Exclusive Right to Sell Listing Agreement”) expires during the course of a transaction, the broker or firm is still entitled to their commission. The same analysis applies to Form 201 (“Exclusive Buyer Agency Agreement”). In most transactions, the commission will be “earned” once the property goes under contract. Once earned, the only remaining issue is when the fee is paid, which in most cases will be at settlement. We have also written here that agents may continue to represent clients when an agency agreement expires during a transaction. However, this is only permissible so long as the time between the expiration of the agency agreement and settlement is not too distant.

Under the License Law, brokers must have valid, written agency agreements in order to provide brokerage services during the course of a transaction. Though the Commission may permit a broker to close out a transaction where an agency agreement expires shortly before closing, we are receiving reports that many transactions right now are being extended well beyond the current expiration dates of the agency contract. Thus, an agency agreement should be extended for several reasons. First, it will ensure that you are in compliance with the License Law. Second, the odds of a transaction falling through are greater than usual. Having a valid agency agreement will permit you to act quickly to remarket a property should a transaction terminate due to complications related to the pandemic.

If a difficult client is reluctant to extend an agency agreement, you may want to explain your obligation under the License Law and the client’s duty to pay the commission. Hopefully, if the client understands that you are entitled to be paid regardless of whether you assist in the remainder of the transaction or not, they will agree to an extension. If such an approach is not successful, you may want to consider consulting with your own attorney to be advised of your rights under the agency agreement.

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