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Nice try, but no cigar, said a New York trial court.

In 101 Warren Street Associates LLV v. Prestige Homes Realty, LLC, the defendant real estate broker brought to the table a prospective buyer for the plaintiff's multi-million dollar residential condominium apartment, which at the time was still in the offering plan stages.

According to the terms of the brokerage agreement, the broker was entitled to 4% of the sales price; as a result, the seller advanced the defendant broker over $50,000, representing 20% of the anticipated commission on the sale of this unit.

The Buyer Backs Out ... and the Broker Refuses to Refund the Advance

As has frequently occurred in this economy, the buyer backed out of the deal, indicating that they could no longer afford the $6.8 million unit. But when the seller sought the return of its advance to the broker, the broker refused, noting that the seller did receive partial payment for the apartment as part of a settlement agreement it reached with the prospective buyer.

In holding that the seller was entitled to a refund of its advance - and that the broker was liable for breach of contract - the New York County trial court held as follows:

"Here, it is undisputed that the closing, scheduled for April 1, 2009, did not take place because the Buyer was unable to purchase the Unit. Paragraph 2(e), requires reimbursement if there is a failure to convey for any reason, requiring Broker to reimburse Seller with all amounts previously paid to it pursuant to the Brokerage Agreement.

"It is well established that a broker only earns its commission when it procures a buyer ready willing and able to purchase on terms agreed to by the seller. Eastern Consolidated Properties v. Lucas, 285 AD2d 421 (1st Dept. 2001); Prime City Real Estate Co., Inc. v. Hardy, 256 AD2d 80 (1st Dept. 1998). Consequently, the Broker did not earn its commission since it did not produce a Buyer that was ready, willing, and able to purchase the Unit. Accordingly, the Broker was not entitled to the commission because it did not earn it and therefore is not entitled to keep the percentage of the commission paid in advance."

How it Could Have Been Worse - Much Worse - for the Broker

Fortunately for the broker, the Court did not award the seller its attorneys' fees (which it could have done). And, considering the amount of litigation that was needed to get to this point, it certainly stands to reason that those legal fees would have been substantial.

Jonathan Cooper
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Non-Compete, Trade Secret and School Negligence Lawyer
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