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A New Jersey court has evaluated a brokerage’s attempt to collect a commission when the closing occurred outside of the protection period because of an unsatisfied contract contingency.
Classic Homes Realty (“Brokerage”), a real estate broker, represented E.J.G. Properties (“Seller”) in a number of commercial transactions. A dispute arose between the Brokerage and Seller over commissions from two transactions, and so the Brokerage filed a lawsuit against the Seller.
One of the commission claims involved the sale of a sixty-acre property. The Brokerage had an exclusive right-to-sell listing agreement for the property that expired on April 30, 2006. The agreement also contained a protection clause allowing the Brokerage to recover a commission for any transaction which closed within 180 days from the expiration of the listing agreement “to a buyer introduced to the property during the term of the listing agreement.” The protection period expired on October 30, 2006.
In December 2005, the Brokerage began negotiations to sell the property to Monmouth County (“Buyer”), who the Brokerage introduced to the Seller. The Buyer made an offer in June 2006 that the Seller accepted, and in September 2006, the Buyer executed an agreement to purchase the property. The purchase agreement gave the Buyer a sixty-day review period, expiring on November 13, 2006. During the sixty days, the Buyer had the right to make certain inspections and gave the Buyer sole discretion to terminate the agreement if it determined the property’s condition was not acceptable.
The Buyer acquired ownership of the property on December 7, 2006, which was outside of the listing agreement’s protection period. When the Seller refused to pay the commission, the Brokerage filed a lawsuit against the Seller. The trial court ruled in favor of the Seller, and the Brokerage appealed.
The Superior Court of New Jersey, Appellate Division, affirmed the trial court. The court considered whether the Brokerage had the right to collect the commission from the Seller. In New Jersey, a real estate broker can normally collect commission upon the completion of a sale. However, the court stated in this case the issue was whether the Brokerage had a right to receive a commission at the time the transaction closed.
The court ruled that the Brokerage did not have a right to collect a commission on December 7, 2006. The court found that the sixty-day review period limited the Seller’s ability to enforce the purchase contract until the end of the review period and the review period ended outside of the protection period. Because the Seller had no right to enforce the terms of the purchase agreement during the term of the listing agreement due to unsatisfied contract contingencies, the court determined that the Brokerage had no right to recover a commission when the sale closed with the Buyer in December 2006.
The court rejected the Brokerage’s argument that creating such a standard would cause sellers to include contingencies extending beyond the listing period in order to deny commissions to brokers, stating that brokers could avoid this situation through concise language in their listing agreements. Thus, the court affirmed the rulings in favor of the Seller.
Classic Homes Realty v. E.J.G. Properites, Inc., No. L-5218-06, 2008 WL 4935908 (N.J. Super. Ct. App. Div. Nov. 20, 2008). [Note: This opinion was not published in an official reporter and therefore should not be cited as authority. Please consult counsel before relying on this opinion.]
Editor’s Note: NAR, per the recommendation of the NAR Legal Action Committee, and the New Jersey Associaton of REALTORS® are contributing financial support to the Brokerage’s petition seeking review of the lower court decisions in this case.