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Mainardi Management Co. v. Estate of Fanale

A-2991-07T1 (N.J. Super. App. Div. 2009) (Unpublished)

BROKERS; COMMISSIONS— Where payment of a brokerage commission is expressly conditioned upon an even that is not subverted by the property owner, the property owner has no obligation to pay the commission and the terms of a written brokerage agreement will be enforced as written even if the owner may have been unjustly enriched.

A property owner and a broker signed a commission agreement drafted by the broker in connection with a lease. It provided for the payment of brokerage fees in installments upon the completion of certain milestones. After the tenant signed the lease, the landlord, as required by the agreement, paid the first installment. Before the broker was entitled to receive the second installment, the tenant needed to obtain a certificate of occupancy and open for business. The landlord never commenced construction, however, claiming that additional permits and approvals were required. The record was devoid as to what additional approvals, if any, were required or the degree of effort that the owner engaged to obtain these approvals. The broker contended that all prerequisites to commencing construction had been satisfied. Eventually, the tenant terminated the lease. The broker then sued for the remaining balance of the commission agreement.

The Law Division dismissed the broker’s claim finding that the commission agreement expressly conditioned the second payment on the tenant obtaining a certificate of occupancy. This contingency never occurred, and thus, it held that the broker should not receive any commissions other than the initial payment that was required when the lease was signed. Specifically, the lower court found that the owner was inexperienced in commercial matters and was incapable of completing all the procedural steps necessary to commence construction; the transaction was financially impossible for the owner to complete; the owner was not as capable as was the broker in matters of commercial development; and, that owner proceeded in good faith without animus to broker.

On appeal, the Appellate Division affirmed the lower court’s ruling, holding that the central legal question was whether broker was entitled to the entire commission once the lease was executed or if broker was entitled to certain amounts as various contingencies were fulfilled. It determined that the answer turned upon whether the provision: “upon [the tenant] obtaining a certificate of occupancy and opening for business” indicated a condition for payment or was intended to function as a time-spacing provision to spread payments over a longer period. It also found that the disputed language required the tenant to occupy the property before broker became entitled to the second payment.

In the end, the Court ruled that the broker had no contractual claim of entitlement to the commission balance. It opined that the broker failed to establish that it was entitled to the full commission upon lease execution. Aside from the broker’s unilateral claim of entitlement four years after the agreement was signed and after the deal had failed, the broker provided no other evidence to support its position. In addition, the Court construed any ambiguities in the contractual language against the broker since the broker drafted the document, even if broker’s interpretation could be read with equal or greater validity. It also pointed out that the sole factual issue in dispute was whether the landlord intentionally subverted the lease by not taking the final steps necessary to begin construction. As to that point, the Court believed that the broker did not present any significant evidence to support that proposition. It noted that there was no direct evidence that the landlord could have proceeded with the development and chose not to, nor was there evidence that the landlord allowed the lease to lapse with the goal of depriving broker of its commission.

In rejecting the contention that the broker violated the implied covenant of good faith and fair dealing, the Court stated that the lower court found broker failed to establish that the landlord did not act in good faith. The Court saw no reason to disturb the lower court’s finding in this regard. The Court also rejected broker’s claim for unjust enrichment on the broker’s theory that it had invested a lot of time and effort into furthering the development of the property. Where, as here, the parties have a written agreement, the Court held the parties will be held to the terms of that agreement. Thus, according to the Court, since the owner abided by the brokerage agreement, the unjust enrichment argument failed.

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