In our June 2009 column entitled Caveat Broker: Avoiding Unenforceable Agreements to Agree, we reviewed the prerequisites to a viable and enforceable brokerage commission agreement. This month we explore the scope of exclusivity owed by a broker to a seller in light of the recent decision by the Court of Appeals in Douglas Elliman LLC v. Tretter, 2012 WL 5833609 (2012).
In Douglas Elliman LLC v. Tretter, plaintiff Douglas Elliman Real Estate (Douglas Elliman) brought suit against defendants Franklin and Sheila Tretter (the Sellers) for failure to pay a broker commission on the sale of their cooperative apartment. According the decision, the Sellers retained Prudential Douglas Elliman Real Estate to sell their apartment located in Manhattan, wherein Barbara Lockwood served as the broker for the listing. The brokerage agreement stated that the Sellers would be required to pay a 6% commission on the sale of the apartment. After the brokerage agreement was signed, Lockwood prepared the listing and began to show the apartment at open houses and by appointment. In November 2008, a potential purchaser made an offer on the apartment, which was accepted by the Sellers, subject to the cooperative board’s approval.
During one of the open houses at the Seller’s apartment, Lockwood met Taurie Zeitzer. After the initial bidder’s offer was accepted and while the bidder was providing the required information to secure the cooperative board’s approval, Lockwood communicated with Zeitzer and her husband via email and showed the Zeitzers five other properties, including four properties listed through other agencies. In addition, Lockwood discussed twelve other apartments with the Zeitzers.
Ultimately, the Sellers deal with the initial bidder fell through in late November 2008. A few weeks later, Lockwood again showed the apartment to the Zeitzers. Subsequently, the Zeitzers made an offer of $1.4 million, and in December 2008 the Sellers accepted the offer and entered into a contract with the Zeitzers (the Buyers) for the purchase of the apartment.
Prior to the Sellers and the Buyers reaching an agreement, Lockwood sent the Sellers a deal sheet which listed a $70,000 brokerage commission (5% of the $1.4 million). Douglas Elliman later confirmed in writing that the brokerage fee on the deal sheet was correct and that it would reduce its brokerage commission from 6% to 5% if the Sellers sold the apartment to the Buyers, which ultimately occurred. Further, the contract between the Sellers and the Buyers listed “Prudential Douglas Elliman (Barbara Lockwood)” as the broker, and stated that it was the Sellers’ sole responsibility to pay the broker’s commission.
The $70,000 commission was due and payable at closing, however, Lockwood was unable to attend the closing and the $70,000 was placed in escrow. After the $70,000 was not turned over, Douglas Elliman filed suit against the Sellers to recover its broker commission on the sale. In their Answer, the Sellers alleged that Douglas Elliman was not entitled to a commission because Lockwood had breached her fiduciary duty to the Sellers by acting as a dual agent of the buyers.
The Sellers moved to dismiss the Complaint, and Douglas Elliman cross-moved for summary judgment on its claim to obtain the commission. The trial court denied both motions finding that there were triable issues of fact whether Lockwood was acting as a dual agent for both the Buyers and Sellers. Both parties appealed, and the Appellate Division, First Department modified the order by granting Douglas Elliman’s motion for summary judgment holding that “the evidence demonstrated ‘as a matter of law that Ms. Lockwood did not act as a dual agent’ with the concomitant ‘duty to disclose her divided loyalties and obtain the parties’ consent thereto’” because
Ms. Lockwood had a signed exclusive agency agreement with the [sellers]. She had no similar agreement with [the buyers], and she received no remuneration from them. Ms. Lockwood’s actions indicate that she wanted this transaction to close, and Douglas Elliman’s submissions support the conclusion that she ultimately obtained permission to reduce her own commission to bring the parties to an agreement. The negotiated contract was signed by both [parties], it listed Ms. Lockwood as the agent, and it explicitly stated that the sellers were exclusively responsible for her fee. ((Douglas Elliman LLC v. Tretter, 2012 WL 5833609 (2012), quoting Douglas Elliman LLC v. Tretter, 84 A.D.3d 446, 448-449, 922 N.Y.S.2d 74 (1st Dep’t 2011).))
On appeal, the Court rejected the Seller’s argument that Lockwood was not permitted to show the Buyers any other apartments because the parties entered into an exclusive seller’s agreement and affirmed, holding that absent a specific agreement to the contrary, Lockwood had no duty to refrain from offering other properties to the Buyers. The Court elaborated that “A contrary holding would ‘unreasonably restrain’ brokers from cultivating potential clients at open houses for their principals.” The Court found that such a narrow interpretation runs counter to the holding in Sonnenschein v. Douglas Elliman-Gibbons & Ives, 96 N.Y.2d 369 (2001) “which sought to formulate a rule consistent with the nature and fundamental requirements of the real estate marketplace in New York (internal quotations omitted).” The Court concluded that Douglas Elliman established it entitlement to the commission as a matter of law, and the statements and conduct cited by the Sellers did not raise any triable issue of fact.