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Pagano Company v. 48 South Franklin Turnpike, LLC

A-4330-06T2 (N.J. Super. App. Div. 2008) (Unpublished)

BROKERS; LEASES — A purchaser of a property is not responsible for paying commissions to a broker owed by the previous owner unless purchaser affirmatively assumes such an obligation.

A property owner entered into a contract with a real estate broker that gave the broker the exclusive right to procure tenants and negotiate leases for an office building. One provision of the contract stated that the contract was binding on the heirs, successors, and assigns of either party. The office building was sold, and the buyer took assignment of the tenant leases as part of the transaction. The lease assignment stated that the assignee was to assume all of the previous owner’s obligations under the leases. The buyer never entered into a direct agreement with the broker and never took assignment of the contract between the broker and the property owner. The broker sued the buyer for payment of the commissions that were due under the prior brokerage agreement. The lower court found that the buyer would have been unjustly enriched and that an inequitable result if the buyer were to have enjoyed all of the benefits of the leases without having taken on the expenses that were a part of the tenancy formations. Thus, the lower court ordered the buyer to pay the broker its renewal commissions.

On appeal, the Court noted that a purchaser of a property is not responsible for paying commissions to a broker payable by the previous owner unless the purchaser affirmatively assumed such an obligation. The Court pointed out that there was no affirmative agreement for the assumption of the broker commissions in the lease assignment documents or anywhere else. The Court also pointed out that each lease contained warranties to the tenant that the lessor had an agreement with the broker, but that they also explicitly stated that any obligation to the broker on the part of the buyer was to have been governed by a separate agreement. The Court further pointed out that the broker was not a party to any of the leases and that there was no agreement in any of the documents signed by the buyer that promised that it would pay any commissions to either the broker or the property owner. The Court found no ambiguities in the language of the contract and found proof that the buyer would have been unjustly enriched if it did not have to pay the commissions. It concluded that if the buyer had notice that the commissions were to be a part of the transaction, it might have negotiated the contract differently, but that it was not the place of a court to make a better contract than was negotiated by the parties. As a consequence, the lower court’s decision was reversed.

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