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Atlantic Commercial Group, Inc. v. Dunham

A-4865-97T2F (N.J. Super. App. Div. 1999) (Unpublished)

BROKERS; COMMISSIONS—A broker may not be entitled to its commission for causing a customer to negotiate with a principal followed by an actual sale, where there is a substantial break in the negotiations.

A real estate broker claimed a commission for the sale of a marina. In an earlier decision, the Court held that the statute that provides that only licensed real estate brokers could earn commissions did not bar a suit for commissions by a real estate broker that was licensed when it performed the services but was no longer licensed at the time of the sale. Consequently, that case was remanded to the lower court. On remand, the lower court again dismissed the broker’s claim, this time on the ground that the broker was not the efficient producing cause of the ultimate sale. Here, the real estate broker was the “exclusive” broker and was entitled to earn a commission, during the term of its brokerage agreement, regardless of who might have become the buyer. The brokerage agreement also provided that if the property was sold or exchanged to a “Registered Prospect” within six months after its expiration date, the commission would also be payable. For purposes of its opinion, the Court assumed that a property would be considered “sold” within the listing period if the agreement for sale was signed before the end of that period and the conveyance took place pursuant to that agreement, even if the closing occurred after the expiration date. In the present case, even though a sales contract was signed during the exclusive sale period, the transaction failed to close because the seller had title problems and the buyer lost its mortgage commitment. Thereafter, the seller and buyer entered into an addendum to the original contract, providing for a lease for up to five years, during which time the buyer could purchase the property if and when clear title was tendered. In connection with the lease agreement, the broker’s agreement was amended to provide for a lease commission and a sales commission “in the event the Buyers exercise the Buyer’s Agreement to purchase pursuant to the terms of the aforesaid lease agreement.” Toward the end of the five-year term of the lease, the tenant fell behind in the rent. The tenant and the landlord met to negotiate a lease surrender, but in the course of those meetings the parties negotiated an entirely new agreement. The new agreement, which did not refer to the original lease, provided for a new one-year lease and gave the tenant an option to purchase the property. The one-year lease did not make any reference to a broker’s commission. The tenant purchased the marina in accordance with the option. When the broker did not receive the sales commission, it sued the marina owner, but the lower court granted summary judgment in favor of the seller holding that the broker was not the efficient producing cause of the sale. To the Appellate Division, it was undisputed that the broker produced the tenant as a potential buyer of the marina. If the broker had not introduced the ultimate buyer to the property when the original transaction was to take place, it probably would not have bought it pursuant to the one-year lease, six years later. The Court held, however, that such introduction was not enough. Where a broker’s agreement provides for a commission “for the sale of the property,” without any other statement of limitation or contingency “a broker is ordinarily entitled to his commission ... if he causes a customer to negotiate with a principal and a customer makes a purchase without a substantial break in the ensuing negotiations.” The negotiations which led to the one-year lease began toward the end of the original five-year lease term. At that time, the tenant owed a substantial amount of back rent and had left real estate taxes unpaid. The negotiations were held with the intent of recapturing the marina property and resuming the operation of the marina. The tenant-buyer, however, convinced the landlord-seller to give it another chance. On these facts, the Court concluded that there was a “substantial break” in negotiations between the broker’s last involvement and the negotiation of the one-year lease containing the option whose exercise resulted in the sale for which the broker claimed a commission. Furthermore, the broker failed to meet the express conditions of its commission agreement. The amended commission agreement made the broker’s commission contingent upon the sale pursuant to the original five-year lease. In this case, the buyer did not purchase the marina pursuant to the terms of the original lease agreement. It purchased the marina pursuant to an entirely new agreement, after termination of the prior agreement for default. As a result, the broker was not entitled to receive a sales commission.


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