When it comes to contracts, attention to detail is important. Sometimes a misplaced decimal point can mean the difference between thousands of dollars and nearly $1 million.
That’s the situation with a new lawsuit filed by Residential Realty Advisors (RRA), a real estate advisory firm for multifamily projects, against fast-expanding NY-headquartered brokerage Compass, over what RRA claims is underpayment — the company wants $871,000 instead of the $8,710 it received — due to what it says was a simple error in a contract for work it completed for a company later swallowed up in a chain of acquisitions that ended, most recently, with Compass.
Specifically, RRA claims there was a “scrivener’s error” in its contract with The Mark Company, a real estate sales and marketing firm acquired by Pacific Union International in 2015, which was subsequently acquired by Compass last year. The Mark Company joined forces with Compass’ development arm in September 2018.
According to the complaint, The Mark Company orally agreed to pay RRA 16.25 percent of gross sales commissions from the sales of condominium units at an ultra-luxury development in San Francisco, 181 Fremont St. The companies signed a letter agreement in 2013 which Compass now notes included RRA’s rate at 0.1625 percent, instead.
However, RRA apparently did not see or acknowledge this error at the time.
Screen shot from home page of 181Fremont.com
“Thereafter, from 2013 through 2015, [RRA principal Steven] Rockmore and RRA spent a substantial number of hours performing services on the 181 Freemont (sic) project, just as he had done on his other projects with TMC,” the March 13 complaint, filed in New York’s Supreme Court, said.
“As a result of the efforts of TMC and RRA, the 181 Freemont (sic) project has been a success and, upon information and belief, most of its condominium units have been sold,” the complaint added.
When RRA started receiving payments for its work after Compass acquired Pacific Union, the payments were 100 times lower than what RRA says RRA and The Mark Company agreed to. When Rockmore protested, Compass told him the 2013 letter agreement stated RRA’s commission was 0.1625 percent, not 16.25 percent.
“This was obviously a scrivener’s error as he would never have agreed to perform such extensive services and made such a substantial commitment of time for such an absurdly low level of compensation,” the complaint says.
“The percentage mistakenly typed into the agreement would make RRA’s compensation from the commissions on the sales of the condominium units in 181 Freemont (sic) (at the selling prices listed) only $8,710, rather than $871,000 as RRA would be entitled to absent TMC’s error.”
The lawsuit asks the court for an order to change (reform) the 181 Fremont agreement to reflect the 16.25 percent commission RRA says it’s entitled to. The suit also alleges breach of contract because Compass has refused to pay the larger amount.
Compass filed a motion to dismiss the suit last week, on May 28. The brokerage said it was not a party to the 2013 contract and was therefore not liable for it.
“Most obviously, this matter must be dismissed because defendant Compass has nothing to do with the subject contract in either its original or (proposed) reformed state,” the motion says. “Rather, the party with whom RRA contracted is The Mark Company, and any claims must be brought against TMC. TMC, however, is not even named in the complaint.”
Furthermore, Compass noted that the 2013 agreement was based on an earlier 2005 agreement between RRA and TMC that contained the same 0.1625 percent commission amount — and that RRA wrote that agreement.
“Plaintiff, by his own allegation, has not only been aware of this so-called error which has been in writing since 2005, but Plaintiff’s Mr. Rockmore himself drafted it. Plaintiff does not allege that he complained about this mistake that he himself made at any time in the past fourteen years,” Compass’ attorney wrote.
Asked for comment, a Compass spokesperson told Inman in an emailed statement, “This issue existed long before Compass merged with Pacific Union, and for reasons we made clear in our filling, we believe that we are not a party to this lawsuit.”
RRA did not respond to a request for comment.
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