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Thursday, September 29, 2005

When is a Broker’s Job Fully Performed?

New_york_flag_6 When a lessee uses a real estate broker to locate an apartment, and the lessee and the landlord reach a deal but later mutually rescind it, should the broker get to keep the fee?  The answer depends on the language in the broker's contract with the lessee.

Marco Srour requested that Dwelling Quest Corp, a real estate brokerage firm, assist him in finding a Manhattan apartment. The broker assisted Srour in finding an $11,000 a month penthouse. Srour signed a lease with the landlord and paid his first month's rent and security deposit. Srour requested certain, minor repairs to the apartment before he moved in, and the landlord agreed to make those repairs. Srour then paid the broker $13,000 in cash for his commission.

Something went horribly wrong, however, in the time between the lease signing and Srour's move-in date. When Srour showed up to the apartment in was no longer habitable:

the windows were covered; scaffolding was in place; the ceiling in the master bedroom had caved in from a water leak; the whole roof was being ripped up to prevent leakage and the unit's wraparound terrace was completely inaccessible. Renovation work was expected to take six to eight months, which included constant drilling.

Srour demanded that the landlord cancel the lease and return his first month's rent and security deposit. The landlord complied. Srour then asked the broker to return the commission fee. The broker refused; Sour sued. The question becomes: when was the broker’s job fully performed? The parties’ contract defined the broker’s job as “assisting in the location and renting of a suitable apartment.”

The trial court held that the broker had to return the commission because he had not presented a “suitable” apartment for rental. The Appellate Term affirmed. The Appellate Division reversed. The Appellate Division majority held that “the apartment in question constituted a ‘suitable apartment’ at the time it was located and rented, and the signing of the lease was specified as the critical moment at which the broker's commission was earned.” The court noted that the broker’s obligation to assist in finding a suitable apartment was separate and distinct from the landlord’s obligation to deliver a habitable apartment, and it was the landlord who breached his obligation. The court noted:

Of course, the "parties to a brokerage agreement are free to add whatever conditions they may wish to their agreement" (Feinberg Bros., supra at 830 [citation omitted]). For instance, in Graff v Billet (64 NY2d 899 [1985], affg 101 AD2d 355 [1984]), the parties specifically included in their agreement that the commission would be due and payable "as, if and when title passe[d], except for willful default on the part of the seller" (101 AD2d at 355). Therefore, in Graff the broker did not earn the commission merely by presenting a willing purchaser, or even upon the signing of a contract; it was earned only at the time of the contract's closing, when title passed (id.).

Here, however, unlike Graff, the parties did not insert in the agreement any "precondition" requiring that the tenant be in occupancy in the residence before the broker's obligation is discharged and the commission earned. There was no provision or condition that the broker's obligation to the client would continue until the client took occupancy. The only "condition" supplied by the written brokerage agreement was the provision specifying that once a suitable apartment had been located and rented, the commission would be payable upon the signing of a lease. Nothing was included in, or added to, this brokerage agreement, which could be interpreted as extending the broker's general obligation to the plaintiff past the date when the lease was signed.

The two-Justice dissent would have affirmed “because defendant did not meet its obligation of procuring a ‘suitable’ apartment for plaintiff ‘[t]he entire transaction can only be reasonably viewed as a nullity, as it was by the immediate parties to the lease.'"   

New York’s highest court will hear oral argument in the case next month.

Srour v. Dwelling Quest Corp., 11 A.D.3d 36 (N.Y.  App. Div. 1st Dep't 2004).

[Meredith R. Miller]

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