How Having a Written Real Estate Brokerage Agreement Can Benefit an Owner

Two Recent Decisions from the Supreme Court (Suffolk County) Show the Importance of Having Written Brokerage Agreement shutterstock_80260624

On December 5, 2014, the Supreme Court, Suffolk County, issued two decisions in separate cases involving real estate brokerage commissions.In one case, Goli Realty Corp. V. Halperin (41574/2010, NYLJ 122681289827, at *1), the court found that a real estate broker was entitled to commission even though there was no written contract between the broker and the owner, while in Saunders Venture Inc. v. Catcove Group, Inc. (37906/2011, NYLJ 1202681290269), the court denied a claim for a commission where parties had a written brokerage agreement because the agreement expired before the closing and the broker was not the procuring cause.

In Goli the broker, Goli Realty Corp. sought to recover a broker’s commission in connection with a commercial lease.  The testimony at trial showed that the seller, Halperin, contacted Goli in 2006 to secure a lease for land owned by defendants in Quogue.  Goli introduced Hess as a prospective tenant, and Goli sent Halperin a proposal from Hess and a commission agreement.  Halperin, through its counsel, rejected the proposal and did not execute the commission agreement.  After engaging in lease negotiations with other prospective tenants, including a drug store and another gas company, Halperin ultimately entered into a lease with Hess, and did not pay a commission to Goli.

The court found that, even in the absence of a written agreement, Goli established entitlement to a broker’s commission on the lease. The court first reasoned that an implied-in-fact contract arose between the parties based upon their conduct.  In addition, the court also reasoned that Goli was entitled to the commission under the doctrine of unjust enrichment. The court explained that Halperin was enriched by reaching out to Hess and avoiding the payment of a broker’s commission, and that it was against equity and good conscience to allow Halperin to avoid having to pay the commission.

The Goli case demonstrates that the absence of a written brokerage agreement will not necessarily excuse a seller from paying brokerage commission where parties’ conduct gives rise to an implied contractual relationship, or where fairness and equity indicate that payment of a commission is warranted.

The owner in Goli may have been wise to negotiate the commission agreement with the broker to obtain more favorable terms that would protect the owner’s interests rather than attempt to bypass the broker entirely.   In fact, the Saunders case demonstrates how a written brokerage agreement can benefit an owner by providing certainty of the terms and conditions upon which a commission will become due.

In Saunders the court denied a broker’s claim to a commission on the sale of land. Unlike the situation in Goli, the broker, Saunders, and the owner-seller, Catcove, entered into a letter agreement in July 2009. The term of the agreement was limited to 120 days, which could be extended for one year if the broker provided a list of interested purchasers within the 120-day period.  During such time, the broker suggested the sale be structured as a “bargain sale,” and introduced the seller to the buyer, TNC. However, the deal between the seller and TNC never closed during the 120-day period or the one-year extension.  In September of 2011, the seller closed a sale with another buyer, PLT, and the transaction was structured as a “bargain sale.”

The court found that the agreement between broker and buyer clearly specified the terms between the parties. Since the sale did not occur within the time period of the agreement, the broker was not entitled to the commission. Moreover, the court found that the broker was not the “procuring cause” of the sale because there was no evidence that the broker was involved in the negotiations between the seller and PLT.

There a few points that can be taken from the Saunders and Goli cases.  First, parties must be mindful that the absence of a written agreement does not necessarily mean that a broker’s commission does not have to be paid.   Verbal agreements for brokerage commissions are enforceable in New York, and the Goli case shows, contracts can be implied by the conduct of the parties, and a court can order payment of a commission where equity dictates it. On the other hand, brokers should be aware that, where a written agreement is indeed present, the terms of those agreements are the boundary of the broker’s right to commission, and courts are reluctant to look outside the agreement to award rights that go beyond the explicit agreement of the parties.  Thus, for an owner seeking to employ the services of a broker it is advisable to negotiate a written agreement to avoid ambiguity and uncertainty that is inherent in verbal agreements.

George Sitaras Esq.

Maurizio Anglani JD

The attorneys at Marco & Sitaras, PLLC, routinely deal with drafting, negotiating and litigating real estate and business brokerage agreements on behalf of owners, brokers, buyers, landlords and tenants in New York, New Jersey, and Florida.  If you have a question or require counsel in relation to a brokerage agreement feel free to contact one of our attorneys.

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phone: 212-430-6410 (ex 190)