Broker Denied Commission for Lack of Written Agreement
- A written agreement establishes the terms and obligations of the parties and ensures performance.
- Important terms such as each party’s role, the nature of the relationship, terms of payment and any conditions attached should be clearly and explicitly stated in the agreement.
- A broker’s agreement should be signed by the broker and the client to ensure its validity.
- Informal communications such as text messages may not satisfy the legal requirements for a valid agreement and thus preclude any form of recovery.
A New York federal district court granted summary judgment in favor of a seller, ruling against a business broker’s breach of contract and commission claim because New Jersey law requires business brokers to adhere to the Statute of Frauds and to explicitly stipulate if a broker is to receive commissions for a sale they did not cause.
A New York real estate and business brokerage Tayyib Bosque, Corp. (“Bosque”) agreed to help a property owner (“Seller”) sell three businesses located in New Jersey in exchange for a commission. Bosque did not hold a New Jersey real estate license in New Jersey and thus he provided services as a business broker and a finder. He went to New Jersey to inspect the properties, conduct market analysis of similar businesses, and took at least three investors to view the properties. After Bosque found a buyer for the property, he facilitated the negotiation of contract terms and managed the logistics of when the deposit and contract would be executed. The Seller balked at some of the buyer’s terms, and ultimately sold to a different buyer. Nonetheless, Bosque asserted that the agreement did not require him to cause the sale to earn the commission. He claimed that the only conditions were to provide a deposit and a signed contract from a buyer, which he met. The Seller disagreed and refused to pay the commission. Bosque sued for breach of contract among other claims.
Applying New Jersey law, the court noted important distinctions between a real estate broker, a business broker, and a finder. A real estate broker in New Jersey must have a New Jersey real estate license, while a business broker need not be licensed. Additionally, unlike business brokers, finders receive a commission when they find a buyer regardless of whether the sale is closed with that buyer. Although Bosque argued that he was a finder, the court held that by stepping beyond a finder’s duties, which are limited to locating and introducing parties, to analyze the market and negotiate terms and price, Bosque acted as a business broker.
As a business broker, Bosque’s dealings were subject to the New Jersey Statute of Frauds. The statute provides that New Jersey business brokers are only entitled to a commission if the amount or rate of commission is in writing and signed (physically or electronically) by the seller, buyer, or authorized agent. Although Bosque presented a series of text messages discussing Bosque’s commission amount, the court found that the texts did not constitute a written, binding contract due to a lack of a signature, electronic or otherwise. Further, under New Jersey law, if a broker is entitled to commission for a transaction that he or she does not cause, the agreement must explicitly provide so. Although Bosque found a buyer for the properties, the buyer and Seller never entered into a binding contract and Bosque knew that Seller was working with another broker to find a buyer. Yet, none of the writings relied on by Bosque indicated he would be entitled to a commission on sales he did not cause. Finally, because Bosque failed to establish the existence of a contract under the Statute of Frauds, his common law claims for unjust enrichment and quantum meruit were likewise barred.
On appeal, the Second Circuit affirmed the district court’s decision, noting that New Jersey was the correct choice of law. The court then reiterated that, in New Jersey, if a broker is not the producing cause of the transaction, the broker can only earn a commission if the agreement explicitly provides for it, and Bosque’s conversations with the Seller through texts were insufficient to meet this standard.
Tayyib Bosque, Corp. v. Emily Realty, LLC, No. 17 CIV. 512 (ER), 2019 WL 2502494 (S.D.N.Y. June 17, 2019), aff'd sub nom. Tayyib Bosque, Corp v. Emily Realty, LLC, 813 F. App'x 628 (2d Cir. 2020)