When buying a commercial real estate property, the brokerage agreement is between the buyer or seller and the broker. The broker is an agent of the buyer or seller and, as an agent, has fiduciary duties to the client. Sometimes the broker could act as a dual agent, which creates potential conflicts of interest. Real estate counsel can serve to ensure the broker will represent a client's interest in a transaction by crafting a detailed agreement that meets those needs.
Most states recognize that real estate brokers occupy a position of trust through a fiduciary relationship with the parties they represent. A fiduciary relationship brings with it requirements of fidelity and good faith. These issues are often raised in claims that an agent has acted as a real estate broker and a buyer (or seller) of a property. It is a potentially dangerous position for an agent to occupy.
The benefit of the brokerage agreement is clear communication between the buyer (or seller) and the broker. It is an excellent opportunity to discuss who will perform what tasks. At a minimum, the best agreements shall establish: (1) the timing for completing tasks, (2) when and how the broker is paid, (3) how to handle broker expenses, and (4) when the broker's representation ends.
The broker agreement should limit liability and include indemnification language that protects the broker from the client's acts and ensures that clients are not held responsible for the broker's act. Because this is an agency relationship, the client must communicate to the broker what representations or statements the broker can make on behalf of the buyer or seller. If a dual agent situation cannot be avoided, the issues of potential conflicts of interest should be addressed in the agreement.
Listen as our expert panel discusses what constitutes an enforceable broker agreement, clarifies provisions to establish clear fiduciary duties, and outlines how to avoid conflicts of interest while limiting potential liability for the acts of others.
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PEIs, together with mortgage loans and mezzanine loans, are often a critical part of the capital structure used by sponsors to fund real estate ventures. The terms of PEIs can vary considerably. On one end of the spectrum are PEIs that are economically and functionally equivalent to a mezzanine loan, though structured as equity and not debt. On the other end of the spectrum are PEIs that are pari passu with the sponsor's equity. In any context, a PEI's equity is subordinate to all of the real estate venture's debts.
PEIs typically earn a higher rate of return on the investment than debt financing. They may earn a share of cash flow beyond a stated rate of return and any capital appreciation. The preferred equity investor generally has consent over "major decisions" (the list of which can range from a small handful of items to an extensive list), may have buy-sell rights, forced sale rights or put rights, and typically have removal rights (the right to remove the managing member or general partner of the real estate venture and replace it with the PEI or its designee). Removal rights can run the gamut from being limited to bad acts or being performance-based.
To achieve all the benefits of PEIs and mitigate the risks, counsel to investors and the recipient entity must negotiate and structure key terms that address matters such as exit strategy, remedies in the event of the entity's default, issues surrounding a change in control, and the impact of an entity bankruptcy. Also, counsel must anticipate and address tax implications for the entity and the investor in the PEI agreement.
Listen as our authoritative panel prepares counsel to real estate lenders, investors, and borrowers to structure, enforce, or challenge PEI agreements in the current real estate market. The panel will compare and contrast PEIs vs. mezzanine financing. The panel will also outline the key points of negotiation and agreement provisions for the equity investor and the real estate developer, including remedies for default, change in control, exit strategy, the impact of bankruptcy, and tax implications.