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Commission Agreements Conditioned Upon Verbal Agreements of Sale

The Appellate Division, Second Department recently issued an interesting decision concerning brokerage commissions in Regency Homes Realty Group, Inc. v. Leo and Laura, LLC, 155 A.D.3d 1075, 1077 (2d Dept. 2017). The case illustrates that, although a brokerage agreement can condition commission payments upon the seller and buyer reaching a verbal agreement of sale, there is often difficulty in proving that the parties reached a verbal agreement on the essential terms of a contract of sale.

The case involved an October 24, 2013 exclusive listing agreement between the plaintiff, a licensed real estate brokerage firm, and the defendant, a property owner in New Rochelle. The listing price was $5.5 million and the commission agreement provided for the payment of a 6% commission if, during the period of the agreement, the property was sold or transferred, the property was the subject of a contract of sale, or the defendant and a buyer reached a verbal agreement regarding the material terms of a sale.

On November 9, 2013, a prospective buyer made an initial offer in the sum of $4,730,000. The defendant made a counter offer in the sum of $4,800,000. The buyer then made an offer of $4,755,00, and the seller then sent an e-mail confirming acceptance of the price.

The plaintiff broker then prepared a purchase memorandum on November 19, 2013, which stated that a $200,000 deposit was due upon the signing the contract, with the balance due at closing. The memorandum did not specify how the balance was to be paid.

On December 4, 2013, the plaintiff broker provided a new purchase memorandum that stated the purchase price was $4.8 million, and it also provided that the seller would take back a second mortgage for $300,000. Thereafter, the seller’s attorney prepared a contract of sale, but the contract provided that the purchase price of $4.8 million would be paid by the $200,000 contract deposit and the assumption of an existing mortgage on the property in the sum of $4.6 million.

In January 2014, the plaintiff, the defendant, and the buyer attended a meeting, at which the defendant refused to proceed with the sale because the existing mortgage on the property only amounted to approximately $1.6 million.

The plaintiff broker then commenced litigation to recover a brokerage commission based upon the November 2013 sales price of $4,755,000, claiming that there was a verbal agreement, made in November 2013, regarding the material terms of the sale, evidenced by defendant’s email agreeing to the price of $4,755,000.

The Supreme Court initially awarded the broker summary judgment, finding that the seller had reached a verbal agreement with the buyer as to the contract’s material terms. In reviewing the case on appeal by the seller, the Second Department reversed and made several important findings.

First, the Appellate Division found that the agreement to pay a commission could be triggered by a verbal agreement. The Court said such an agreement was enforceable because the brokerage agreement “is clear and unambiguous that a commission was due if there was an oral agreement as to the material terms of the sale.”

However, the Court went on to find that there were questions of fact as to whether there was ever an oral agreement as to the material terms of the sale given there were two memoranda with different sale prices, and there were issues as to payment terms. As a result, the Court found that there were triable issues of fact as to whether the defendant and the prospective buyer ever reached a meeting of the minds as to the proposed contract.

This case illustrates that, while a commission agreement based upon a verbal agreement of sale is legally enforceable, there is often a practical difficulty in proving the existence of a verbal agreement.