So I signed with a broker to sell my HVAC company. Standard-looking contract, 6% commission, 12-month exclusive. My lawyer took one look and started laughing. Then he got mad. Turns out the 'tail' clause would have let the broker claim commission on any buyer they introduced for 2 years after the contract ended, even if I sold to my own nephew. Also the contract said I couldn't sell to anyone the broker had 'discussed' the business with, and 'discussed' wasn't defined anywhere. Lawyer rewrote the whole thing. Curious if others have had this happen or if my broker was just especially creative with the fine print.
Broker Contracts
Why my lawyer had to rewrite my business broker contract
Mine tried to sneak in a clause that I'd pay for 'marketing expenses' regardless of whether the business sold. No cap on it either. I asked what happens if they spend 50k on billboards and I pull the listing. Guy goes 'well that's why we're exclusive, so you don't pull it.' Yeah, hard pass.
'Discussed' is doing a lot of heavy lifting there. The taiil clauses are the wild west in broker cojtracts. Some are reasonable—designed to stop you from cutting them out after they bring a buyer. But 2 years and no named buyer list attached = your lawyer was right to nuke it.
honestly the nephew thing is kind of funny. imagine explaining that at thanksgiving
Your broker wasn't creative, they were running the standard playbook. Almost every broker contract I've seen has a tail clause. The trick is getting 'introduced buyer list' defined and capped. Also 12 months exclusive is long if they're not producing showings in the first 90 days.
Did the lawyer give you a redline you can share (anonymized obviously)? I'm about to sign with a broker and now I'm worried I'm walking into the same trap.
HVAC company too? I sold mine last year. Broker wanted 7% and a 18-month tail. My accountant talked me down to 5% and a 6-month tail limited to a written buyer list. The broker grumbled but took it because the listing was already generating calls. Everything's negotiable until it's not.
Wait, you're telling me the contract could've made you pay the broker for selling to your OWN NEPHEW?? That's not a contract, that's a ransom note with a signature line.
Lawyer here (not yours, not advice, etc). The undefined 'discussed' and open-ended tail are the two things that make me reach for a red pen immediately. A good broker will give you a named-buyer list at termination and a defined introduction period. If they won't, that tells you something about how they plan to earn their commission.
TinfoilHelmetGuy checks out. Should've worn the helmet to the broker meeting.
The redline is a mesws of track changes but the main ones were: tail cut to 6 months, only applies to buyers on a written list I sign at termination, 'discussed' replaced with 'had a substantive conversation about the business with documented by email.' Also killed the marketing expense clause entirely. He also added a performance clause—if no qualified showings in 120 days, I can terminate. Broker pushed back but I told him the alternative was walking. He signed.