Daily Development for Wednesday, February 27, 2002

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

BROKERS; LISTING AGREEMENTS; TERMINATION: The regulatory requirement that a brokerage agreement have a definite terminal date which is not subject to any qualifying terms or conditions doesn't necessarily require an absolute termination date; if the duration is sufficiently definable such that the parties know when the term will end, the requirement is satisfied.

Illva Saronno Corp. v. Liberty Hill Realty Inc., 344 N.J. Super. 443, 782 A.2d 473 (App. Div. 2001).

In a complicated real estate and land assemblage transaction, a real estate broker acted on behalf of herself and four neighbors when selling undeveloped rural farm land to a developer. The transaction called for the immediate sale of the neighbor's property and a later sale of the real estate broker's own property. In addition, the real estate broker and developer entered into a written listing agreement providing for a schedule of commissions based upon how and when the property might be sold or developed in the future. A key portion of that agreement read as follows: "This exclusive listing authorization shall remain in effect for a term which commenced September 5, 1986 and continuing for a period to end ten (10) years after the first final approval of the [relevant municipality's planning board] of any substantial part of the development of the property listed in 'Exhibit A' or any land contiguous thereto which may hereafter be acquired by... [the developer] ...or two years beyond the end of any governmentally imposed construction schedule, whichever is longer."

The developer had the exclusive authority to control the project. Twelve years passed without the developer having filed for any governmental approvals. Then, the developer sought a declaratory judgment to rescind the exclusive listing agreement or to reform it and to establish a price for the real estate broker's property which she retained in the assemblage.

Most importantly, in the alternative, the developer sought to invalidate the exclusive listing agreement on the basis that it violated specific provisions of the Real Estate Brokers and Salesmen statutes. One such specific section permits the Real Estate Commission to revoke the license of a broker who "[f]ail[s] ... to specify [within any sale or exclusive sales or rental listing contract] ... a definite terminal date which terminal date shall not be subject to any qualifying terms or conditions."

The lower court and the Appellate Division refused to find that the contractual provision dealing with the expiration date of the listing agreement failed the test of being "a definite terminal date." According to the Court, the parties were "clearly aware of the complexities of intergovernmental relations" and in the course of the parties' experience "the time frame set forth in the agreement[] are clearly definable, clearly understood by the parties and are governed only by the obligation of 'good faith and fair dealing' of both parties to the agreement." The Court would not construe the statute in question as a mandate "to invalidate a commission agreement in all instances other than those in which the parties establish a specific calendar date of termination."

Instead, the Court found "that the statute must be read in the context of the particular business considerations involved and the realties of multi- tiered listing agreements." According to the Court, given that the parties realized that they might "encounter future delays, complexities, and uncertainties in obtaining municipal and/or governmental development and construction approvals ... it would be fruitless and impractical for parties like those in the instant case to enter into an agreement with an absolute termination date, e.g., for a term of ten years from the execution of the agreement."

Further, the Court did not find the terms and conditions to be vague "qualifying terms or conditions" as contemplated by the statute. Consequently, the Court held that the statute only requires that the "duration of an exclusive listing agreement [be] sufficiently definable to the parties so that they know when and how it will end." This enables sellers to modify the terms of the agreement or to engage the services of another broker after the expiration of the initial agreement. It also protects a broker against having its commission jeopardized at the whim of a seller.

Comment: The requirement that listing agreements have a definite termination date is quite common. It is also quite common, as in New Jersey, for the statute not to admit of special application in difficult situations. But the New Jersey court, noted for activist approaches, here reinterpreted the statute.

The parties here knew how the commission responsibility would end, but did they know, as the court suggests, when it would end? In fact, given the realities of development approvals on the kind of time lines involved here, one could speculate that commissions might become payable decades after the original transaction, conceivably even centuries later. It would have been a relatively small matter for the broker to include some final date beyond which it was likely that no commission ought to be payable because circumstances would have so changed that actual agreement on a meaningful commission would be pointless.

If the court's going to be activist anyway, the editor admits that the court's resolution of the problem probably makes rough good sense, and leaves the tough case of the interminable commission agreement for a later time.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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