An essential and important element of any real estate transaction is the agreement entered into by the parties. There are a variety of agreements that are entered into by the various parties in a real estate transaction, such as the listing or agency agreement between the seller and the seller’s agent, the agency agreement between a purchaser and purchaser’s agent and the formal contract of sale entered into between a seller and purchaser relating to the ultimate sale of the property.
While there are certain exceptions where a written agreement is not required, such as a real estate brokerage agreement (discussed further below), it is always recommended that a clear and definitive agreement be entered into so that the rights and remedies of the parties are clearly set forth within the “four corners” of the agreement. In the event of a dispute, the parties will know exactly what their rights are and what remedies are available to them. In Savignano v. Play (see https://bit.ly/3VO8xqz), the Appellate Division strictly applied the four corners doctrine in overturning the lower court’s decision.
All Real Estate Contracts & Leases Longer Than One Year Must in be Writing Under N.Y. GOL § 5-70
Generally, the Statute of Frauds is a legal principle, which requires that agreements, with certain exceptions, be memorialized in writing in order for the agreement to be valid and enforceable. Under the New York General Obligations Law (N.Y. GOL) § 5-703 [see https://bit.ly/3kZeUqo] “A contract for the leasing for a longer period than one year, or for the sale, of any real property, or an interest therein, is void unless the contract or some note or memorandum thereof, expressing the consideration, is in writing, subscribed by the party to be charged, or by his lawful agent thereunto authorized by writing.” Therefore, all leases over a year and real estate contracts are required to be in writing.
Exception to the Statute of Frauds When It Comes to The Payment of Real Estate Broker Commissions
Under N.Y. GOL § 5-701(10), there is a specific exception allowed for real estate agents. It provides that the requirement that an agreement be in writing “…shall not apply to a contract to pay compensation to an auctioneer, an attorney at law, or a duly licensed real estate broker or real estate salesman.” Therefore, if any of the aforementioned parties render services to a client and are able to establish that such an implied or oral agreement exists, they will be entitled to payment for the services provided. For example, a real estate broker may be entitled to a commission based upon the actions of the parties or even a verbal agreement. While it is strongly recommended to have a written or “express” agreement, at times a party may refuse to sign one or the parties may elect not to enter into a formal written agreement.
It is well established under New York case law that “in the absence of an agreement to the contrary, a real estate broker will be deemed to have earned his commission when he produces a buyer who is ready, willing and able to purchase at the terms set by the seller” (see Lane-Real Estate Dept. Store v Lawlet Corp. at https://bit.ly/2C5xiIA). Further, a real estate broker is entitled to a commission where the broker can establish “that it (1) is duly licensed, (2) had a contract, express or implied, with the party to be charged with paying the commission, and (3) was the procuring cause of the transaction.” The above standards are fact-intensive and will usually involve a careful review of the circumstances and evidence surrounding each case.
The ‘Four Corners’ Doctrine Under Contract Law
Courts will customarily adhere to the “four corners” doctrine in contract disputes. If the rights and duties of the parties are clearly and unambiguously enumerated in the “four corners” of the agreement, courts will customarily interpret and apply those provisions strictly. Therefore, it is very important, even where a written agreement is not required under the law, that all parties enter into a written agreement so that all of the essential rights, duties, and obligations of, and remedies available to, the parties are included within the document.
Savignano v. Play: The Importance of a Clear And Unambiguous Agreement
In Savignano v. Play, the parties entered into negotiations for the purchase and sale of real property. On May 11, 2020, the purchaser (the plaintiff), transmitted a signed form contract to the sellers (one of whom was the defendant). The contract contained two contingencies. One contingency consisted of an “attorney approval” provision, which required the parties to obtain approval by their respective attorneys as to the contract terms. The second contingency consisted of an inspection contingency.
The attorney approval contingency was deemed waived if the attorneys did not notify each other of their disapproval, in writing, by May 20, 2020. The inspection contingency would also be deemed waived unless the purchaser notified the sellers of any issues discovered during the inspections. The court explained that if the “plaintiff did so notify the sellers, and provided a copy of the relevant inspection report, then the agreement would be deemed cancelled and plaintiff’s deposit returned, unless plaintiff elected to defer such cancellation for 10 days to permit the parties an opportunity to come to a written agreement on the inspection issue.”
On May 12, 2020, plaintiff’s attorney transmitted an additional purchaser’s rider to the seller’s attorney. On May 13, 2020, the sellers signed the original contract, and it was then transmitted to the purchaser. The sellers, however, did not sign or return the additional rider. The plaintiff’s attorney then confirmed with the sellers’ attorney on May 18th, that the signed contract was received. The purchaser’s attorney also asked about the proposed rider as well as several other documents relating to the title search, but the seller’s attorney did not respond specifically to this enquiry.
Nearly a month later, on June 17, 2020, the purchaser’s attorney notified the sellers’ attorney, in writing, that the purchaser conducted his inspections and that the “inspection had revealed an inadequate well water flow rate and numerous electrical problems.” The court pointed out that the purchaser’s attorney informed the seller’s attorney that the inspections results were “totally unsatisfactory” and “not acceptable” to purchaser. The purchaser’s attorney further advised the sellers’ attorney that the “well would need to be redrilled, and that if there was no adjustment in the purchase price to account for the redrilling, then plaintiff would ‘abandon’ the contract.” As required by the contract, the court pointed out that the inspection report was also provided to the sellers.
On June 25, 2020, the sellers’ attorney notified the purchaser’s attorney that the sellers would not be performing any repairs because the property was being sold in its “as is” condition, and asked whether the purchaser would be proceeding. Over two weeks later, on July 12, 2020, the purchaser’s real estate agent emailed the sellers’ attorney indicating that plaintiff was willing to accept the property “as is” and proceed with the transaction. However, one brother, the defendant in the action, informed his agent and attorney that he did not wish to proceed with the sale. The other brother, instead, informed the attorney that he did wish to proceed with the sale.
On Aug. 3, 2020, the purchaser’s attorney sent a “time of the essence” letter to the seller’s attorney and set a TOE closing date of Sept. 4, 2020. The defendant then engaged a new attorney who sent a rejection of the TOE letter on August 12th, and “asserted that there existed no valid contract, and indicated that there would be no closing.” The purchaser also retained a new attorney who then rejected the defendant’s attorney’s correspondence, and commenced the lawsuit against the sellers for breach of contract, and sought specific performance. After the lawsuit was filed, the defendant purchased the interest of his brother and this is why only one defendant was named in the lawsuit at the time of the appeal.
The Appellate Division’s Analysis in Savignano
The lower court, at the summary judgment stage, “found that a valid contract existed between the parties which had not been canceled via any contingency. The court further determined that defendant’s failure to proceed with the transaction constituted a breach of contract, entitling plaintiff to damages for which a trial would be appropriate.” The defendant appealed the decision of the lower (trial) court.
Offer, Counteroffer, and Acceptance
Although the Appellate Division agreed with the trial court that there existed a valid and enforceable contract, it ultimately disagreed with the finding that the contract had not been cancelled. The Appellate Division explained that “it is a fundamental principle of contract law that a valid acceptance must comply with the terms of the offer…and a purported acceptance that does not comply with the offer’s terms is ‘equivalent to a rejection and counteroffer.’” The Appellate Division pointed out that when the purchaser’s transmitted the signed contract along with the proposed rider, that constituted an offer. The sellers then “counteroffered by signing and returning to plaintiff only the form contract without the rider. Plaintiff then accepted the counteroffer by proceeding with the inspections, as ‘a counteroffer may be accepted by conduct.’” The Appellate Division further held that the May 18th letter transmitted by the purchaser’s attorney in no way “signaled disapproval.”
Four Corners Doctrine: Strict Adherence to Contract Terms
The Appellate Division, in determining whether the contract was ultimately cancelled, applied a strict interpretation of the contract’s terms and adhered strictly to the provisions contained within the “four corners” of the agreement. The Appellate Division explained that in accordance with the contract, the purchaser’s attorney, in his June 17th letter, “notified the sellers’ attorney that the property had failed multiple inspections, and provided a copy of the relevant inspection report.” The Appellate Division explained that “this conduct, in accordance with the language set forth in the inspection contingency, rendered the contract ‘cancelled, null and void’ unless plaintiff chose to defer cancellation for 10 days.”
The Appellate Court then went on to explain that since the purchaser, in the June 17th letter, requested that the seller resolve the issues, the purchaser validly exercised the “option” to defer the cancellation for 10 days. However, since no written agreement was reached by the parties as to the resolution of the inspection issues within the 10-day period, the contract automatically cancelled “by operation of the inspection contingency.” The court also pointed out that the purchaser’s broker failed to e-mail the seller’s attorney in a timely manner. The e-mail sent by the purchaser’s agent that the purchaser was willing to proceed with the purchase in its “as is” condition was sent on July 12th, which was beyond the 10-day period provided for in the contract of sale. Accordingly, the Appellate Division, adhering to the “four corners” doctrine, reversed the decision of the lower court and held that the contract had been cancelled and was null and void.
The Importance of Strict Adherence to the Contract Terms
It is clear to see the importance of having a clear and unambiguous written agreement in place for all aspects of a real estate transaction. The decision in Savignano also points out the importance of strictly adhering to the terms of any agreement as important rights may be waived or lost if not done. In Savignano, the purchaser allowed the contract to cancel automatically because the purchaser did not provide timely notice, and ultimately lost the property. This also caused the purchaser to incur additional legal fees and costs as a result.