Why Some Finder's Fee Agreements Aren't Enforceable in NY
Granted, there are a number of categories of agreements that a court won’t enforce, with the most common example being some types of agreements that are required to be in writing (such as contracts involving the purchase of real estate), but never were never reduced to written form.
There is another category that is far less-known, but perhaps just as important: finder’s fee agreements.
To be clear, many types of finder’s fee agreements are enforceable; but there are some, like in the Futersak v. Perl case, where having an agreement structured the wrong way can mean all the difference in the world.
In that case, the plaintiff had a finder’s fee agreement whereby he would be paid 15% of the defendant’s net profits for his efforts in producing a buyer for the property. After the plaintiff fulfilled his task, the defendant reneged on the deal, claiming their agreement was unenforceable because the plaintiff wasn’t a licensed real estate broker.
So what did the court do?
Although (understandably) the trial court bent over backwards to hold the defendant to the agreement, non-parties, including real estate broker associations chimed in on appeal, and the Appellate Division reversed.
In rendering its decision, the appellate court cited New York Real Property Law §442-d, which states as follows:
“[N]o person ... shall bring or maintain an action in any court of this state for the recovery of compensation for services rendered ... in the buying, selling, exchanging, leasing, renting or negotiating a loan upon any real estate without alleging and proving that such person was a duly licensed real estate broker or real estate salesman on the date when the cause of action arose.”
The Court then concluded as follows:
“Contrary to the Supreme Court's conclusion, this prohibition applies even if the services rendered are characterized as those of a ‘finder’.” Futersak v. Perl, 84 A.D.3d 1309, 923 N.Y.S.2d 728 (2d Dept. 2011).
The takeway from this should be obvious:
Before you enter into an agreement where you are to be paid on speculation, or a contingent fee, it behooves you to assure that your agreement is not structured in a way that will be held unenforceable by a New York court.