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Robert DeRuggiero, Inc. v. Sanchez

A-3317-08T3 (N.J. Super. App. Div. 2009) (Unpublished)

BROKERS; COMMISSIONS — Under the “substantial break doctrine,” a broker will be entitled to a commission if it produced a willing buyer, able to consummate a sale, and facilitated negotiations that led to the sale without a substantial break in negotiations even after the brokerage agreement has expired.

An apartment house owner hired a real estate agent to sell its building. The listing agreement had a six month term, but entitled the broker to a commission if the property was sold within 180 days after its expiration date. The post-expiration commission would be earned only if the broker or a cooperating broker had introduced the buyer to the owner while the listing agreement was in force. One month after the listing agreement was executed, a developer, who was made aware of the property’s availability through the efforts of a cooperating broker, made a purchase offer. Six months later, the owner entered into a purchase agreement with the developer. It included several zoning contingencies. The brokers attended several meetings with zoning and other municipal officials to assist the buyer in its efforts to obtain zoning approvals. Although the developer was granted several contract extensions so that it could obtain zoning approvals with the municipality, the seller eventually terminated the contract. Even though the deal was terminated, the developer “kept in touch” with the seller through the cooperating broker. Approximately seven months later, the developer renewed direct discussions with the owner to purchase the property. These discussions culminated in a closing several months later. The purchase price was $200,000 more than the original $1,200,000 deal and eliminated any contingencies. The new contract also struck out the section relating to payment of brokerage commissions that had been included in the original contract. The broker who introduced the buyer sued when he was not paid a commission.

The Law Division held that the listing broker was entitled to the listing’s agreed-upon commission. It found the brokers were the efficient procuring cause for the sale and that the buyer was brought to the seller shortly after the listing agreement had been signed. The Court noted that an offer was made and this resulted in an executed contract. It also noted that the brokers spent considerable time in the efforts to obtain zoning approvals. The Court found that the eventual deal was virtually no different than the first contract between the same parties, but for the “$200,000 bonus.” To the Court, there was a “continuum of actions” tying the two negotiations together since the parties continued to talk after the termination of the first contract. The seller appealed.

The Appellate Division affirmed, holding that “in respect of a listing agreement, absent specific provisions to the contrary, the seller is liable for a commission if the property is sold to any non-exempted buyer during the listing term or is sold after the listing term to any buyer generated by the contracting [real estate broker] before the listing term expired.” Moreover, it pointed to the “substantial break doctrine” which says that a broker may receive a commission if it produced a willing buyer, able to consummate a sale, and had facilitated the negotiations that led to the sale without a substantial break in the negotiations. It disagreed with the seller that: (a) the time lapse between the contracts; (b) the reduction of the broker’s role after the first contract’s termination; and (c) the new terms in the second contract, combined, demonstrated a substantial break in the negotiations which would require the lower court to find that the broker was not the efficient procuring cause of the sale. The Court would not second-guess the lower court’s findings. Rather, it “scoured the record” and concluded that the lower court’s analysis was logically supportable and sustained by competent evidence. Eventually, it found that it was within the realm of the evidence for the lower court to find that there was no “purposeful abandonment” by the brokers. The Court also chose not to disturb the lower court’s finding that there was no meaningful difference between the transaction that closed and the transaction that had previously been terminated.

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