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Louis Ross Associates v. Flower World of America

A-2406-03T2 (N.J. Super. App. Div. 2005) (Unpublished)

BROKERS; COMMISSIONS—Absent a definition of “gross rent” in a brokerage agreement, it isn’t frivolous for an owner to argue that the term excludes such items as taxes and utilities.

A landlord and a broker entered into a listing agreement for a commission based on the gross consideration at final settlement of any lease agreement. The original listing agreement was amended to provide that the commission would be paid in a lump sum payment equal to six percent of the first year’s gross rent plus five percent of the second year’s gross rent plus four percent of the remaining years’ gross rents. The landlord then signed a three year lease. At the end of the third year, the tenant continued in occupancy. The broker then sought four percent of the gross rent payments for the additional years in accordance with the listing agreement. The landlord refused to pay and the broker sued.

In its answer, the landlord contended that the broker’s commission should have been calculated only on “net” rent, excluding real estate taxes and utilities paid by the tenant. It also alleged the broker had engaged in unfair business practices in violation of the New Jersey Consumer Fraud Act. In response, the broker served a Notice of Frivolous Litigation as well as an offer of judgment. The lower court held that the terms of the listing agreement were clear, and that the landlord owed the broker commissions on all gross rent paid by the tenant. The court also awarded litigation expenses and interest to the broker under both the offer-of-judgment rule and the frivolous-litigation statute.

Although the Appellate Division affirmed the lower court’s decision, it pointed out that the absence of an explicit definition of “gross rent” in the listing agreement undermined the conclusion that that landlord’s argument was frivolous. Regardless, the Court held that some of the landlord’s other defenses were frivolous and were in fact “sham” defenses, even if the “gross rent"compared to “net rent” dispute was not. For that reason, the Court also affirmed the lower court’s decision to award sanctions under both the offer of judgment rule and under the frivolous litigation statute.

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