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Classic Homes Realty v. E.J.G. Properties, Inc.

A-0589-07T1 (N.J. Super. App. Div. 2008) (Unpublished)

BROKERS; COMMISSIONS — Where a real property contract has a due diligence period, the buyer is not considered to be willing to proceed with the transaction until the contingency has been satisfied; therefore, such a contract is not considered to be enforceable for the purpose of determining whether a broker is entitled to its commission with respect to such a contract signed during the extension period following the termination date of its brokerage agreement.

A developer bought a forty-two lot subdivided property. The firm that brokered the sale agreed to accept a reduced commission in exchange for a commitment by the developer to list, for sale, each individual lot with it. The developer listed the lots with a different broker, but also entered into a commission agreement with the first broker under which the developer agreed to pay $1,000 upon closing of each individual lot for up to thirty lots, for a total of $30,000. The developer eventually sold forty-one lots but only paid $15,000 to the first brokerage firm.

In the suit by the brokerage firm to enforce the commission agreement, the lower court found, on summary judgment, that the agreement was unenforceable because it lacked consideration. According to the lower court, the developer’s promise to list its properties with the brokerage firm did not constitute consideration and because the brokerage firm was not required to perform a service, and did not give up anything of value or forfeit an enforceable right in exchange for a payment of $30,000.

On appeal, the Appellate Division pointed out that even where the validity of a claim is in question, its surrender could still constitute sufficient consideration. It agreed with the broker’s argument that it was possible for a fact-finder to determine that the claim it forfeited in consideration of the commission agreement was not the right to enforce the developer’s promise to list its properties with the brokerage firm, but was its right to claim reliance on the developer’s promise to list them with it. On that basis, the Court reversed the lower court’s dismissal of the broker’s claim and reinstated it for further proceedings.

A second action was brought by the broker over commissions that stemmed from a listing agreement between the parties under which the brokerage firm would have the exclusive and irrevocable right to sell a sixty-one lot property owned by the developer at a fixed price for a five percent commission. The duration of the agreement was for one year followed by a 180-day extension period to cover negotiations with prospective developers that began within one year of the agreement’s but did not close until after the one-year term. Negotiations between the developer and the county began during the one-year period of the agreement. During the extension period, the developer entered into a sales contract with the county. It was subject to a sixty-day due diligence period for environmental testing. Under the sales agreement, the county could cancel the agreement within sixty days of its execution.

The broker argued that the actual of sale occurred when the agreement of sale was executed. The lower court, however, held that the date of sale was the date of the closing, which was outside of the 180 day extension period because the developer had to wait for the end of the due diligence period before the contract for sale became binding.

On appeal, the broker argued that the property was sold when the sales agreement was signed. The Appellate Division rejected this argument, pointing out that a property is considered sold once there is an enforceable contract for sale under which the buyer is ready, willing, and able to proceed. It found that the property was not considered sold until the date of the closing, which was beyond the extension period, because until the expiration of the due diligence period the developer did not have the right to enforce the agreement. Further, so long as the county had the right to terminate the agreement, it could not be considered as willing to proceed with the transaction. On that basis, the lower court’s finding that the sale took place following the expiration of the extension period was affirmed. Additionally, the Court rejected the broker’s argument that it should have been allowed by the lower court to contend that summary judgment was prematurely granted.

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