Jul 10

Protecting Brokerage Commissions in Resuscitated Deals

Protecting Brockerage Commissions in Resuscitated Deals
By Howard M. Rubin
Partner, Goetz Fitzpatrick LLP

Sometimes, in real estate transactions, the dead can come back to life. The most common fact pattern presented to me in brokerage disputes is where the broker introduces a prospective purchaser to a property and for whatever reason the deal falls apart or doesn’t happen for various reasons but is then resuscitated without the knowledge or participation of the broker. The parties may use a new broker or cut out all brokers to bridge the gap in the purchase price. The standard established by the highest Court of the State of New York in Greene v. Hellman to determine if the broker is entitled to a commission in these cases is whether the broker was the “procuring cause” of the transaction.

Clearly, a broker would not be entitled to a commission simply because they called the attention of the purchaser to the property. However, the Court in Greene v. Hellman has also held that the broker does not have to be the dominant force in the conduct of the ensuing negotiations or in the completion of the sale. Since this 1980 Decision, trial courts and intermediate appellate courts have labored to apply these standards. They have not been successful in agreeing on what constitutes a broker being the procuring cause and the Court of Appeals has not provided any further guidance.

Defining what constitutes “procuring cause” has been discussed extensively by every Trial and Appellate Court in the New York State. Unfortunately, the standards used by these Courts have varied and there has been no definitive definition of how to define “procuring cause” by the Court of Appeals or any of the Appellate Division Courts. Some Courts have used the standard in which the broker must show he created an amicable atmosphere in which negotiations went forward or that he generated a chain of circumstances which proximately led to the sale. Other Courts required even less in that they stated that the broker was only required to put “the parties together in an amicable frame of mind, with an attitude toward each other and toward the transaction in hand which permits their working out the terms of their agreement.”

In a recent decision of SPRE Realty, Ltd. v. Daniel Dienst decided this month, the First Department adopted a stricter standard requiring that the broker be a “direct and proximate link” to the transaction. The adoption of this standard by the Appellate Court governing Manhattan places a burden on brokers who wish to protect their rights to a commission on resuscitated deals. In order to establish a direct and proximate link there should be communications, at least by e-mail, between the broker and the client on a periodic basis asking the client whether they have any further interest in the property. It is my recommendation that brokers who believe they had a client who has a substantial interest in the property continue to make those inquiries on a scheduled monthly basis until the property is sold. Without such communication, it will be difficult to establish a broker as the “procuring cause” of a transaction where significant time passes from when the broker showed the property and the time a future transaction is consummated.

In situations where the broker is able to get a written brokerage contract, the term direct and proximate link should be defined as well as provisions providing the forum for any dispute, the jurisdiction and law to apply and whether attorneys’ fees are recoverable to the prevailing party.

If brokers set up procedures to follow these recommendations, they will put themselves in a strong position to recover brokerage fees in this type of fact pattern which is all too common in our industry.

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