November 15, 2024

I am sometimes drafted to work on commercial litigation matters that are not landlord-tenant in nature. This material comes out of such an occasion, when my client was challenging a commercial broker’s fee, allegedly earned just before the Pandemic for a building-wide tenancy in Manhattan. The case, of course, settled with a mutually beneficial resolution. Therefore, the issue below was never resolved in court. But it is interesting. So, I offer the material here.

QUESTION PRESENTED: Did the Brokerage [obviously the real names are omitted] earn a broker’s fee for the Big Lease [obviously the real names are omitted] transaction at Street [obviously the real location is omitted] if the sole salesman working on the deal did not tell Brokerage about the transaction until long after the deal closed and after the salesman had already attempted to collect the fee via another brokerage firm he was associated with? Put another way, could Brokerage earn a fee for a transaction: (a) that it did not know it had in its shop until long after the transaction closed, where it never guided, instructed, oversaw, or superintended regarding the transaction; and (b) that it kept no written records of?

ONLY A LICENSED BROKER MAY RECOVER A REAL ESTATE BROKERAGE FEE

Real Property Law (“RPL”) § 442-d (Actions for commissions; license prerequisite), states:

“No person, copartnership, limited liability company or corporation shall bring or maintain an action in any court of this state for the recovery of compensation for services rendered, in any place in which this article is applicable, 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 alleged cause of action arose.”

Real Property Law § 440 and sequence, governing the activities of real estate brokers and salespersons, is designed to: (i) protect dealers in real estate from unlicensed persons acting as brokers; (ii) protect the public from inept, inexperienced, or dishonest persons who might engage in fraud; and (iii) establish protective and qualifying standards. Dodge v. Richmond, 5 AD2d 593 [1st Dept 1958]. The purpose of licensing real estate brokers and salespersons is to assure, by means of licensing, competency and observance of professional conduct on the part of real estate brokers and salespersons. In re Wilson Sullivan Co., 289 NY 110 [1942].

Therefore, to recover a real estate brokerage commission, the broker must establish that he or she is duly licensed as a real estate broker. Cusumano Associates, Inc. v. Politoski, 118 AD3d 936 [2d Dept 2014].

A REAL ESTATE SALESMAN IS NOT A BROKER; A REAL ESTATE SALESMAN MAY NOT COLLECT A BROKERAGE FEE FROM ANYONE OTHER THAN THE BROKER THE SALESMAN IS ASSOCIATED WITH; AND A REAL ESTATE SALESMAN MUST BE SUPERVISED BY THE BROKER THE SALESMAN IS ASSOCIATED WITH

RPL § 440(3) defines a “Real Estate Salesman” as “a person associated with a licensed real estate broker to…lease or rent or offer to lease, rent or place for rent any real estate…”. Emphasis supplied. RPL § 442-a (Compensation of salesmen; restrictions) states:

“No real estate salesman in any place in which this article is applicable shall receive or demand compensation of any kind from any person, other than a duly licensed real estate broker with whom he associated, for any service rendered or work done by such salesman in the appraising, buying, selling, exchanging, leasing, renting or negotiating of a loan upon any real estate.”

The New York State, Department of State, Division of Licensing Services, Regulations Affecting Real Estate Brokers and Salesman is codified at N.Y. Comp. Codes R. & Regs. (“NYCRR”) Tit. 19, § 175.1 and sequence. 19 NYCRR § 175.21 (Supervision of salesman by broker) states:

“(a) The supervision of a real estate salesman by a licensed real estate broker, required by subdivision 1(d) of section 441 of the Real Property Law [licensure part of statute], shall consist of regular, frequent and consistent personal guidance, instruction, oversight and superintendence by the real estate broker with respect to the general real estate brokerage business conducted by the broker, and all matters relating thereto.

(b) The broker and salesman shall keep written records of all real estate listings obtained by the salesman, and of all sales and other transactions effected by, and with the aid and assistance of, the salesman, during the period of his association, which records shall be sufficient to clearly identify the transactions and shall indicate the dates thereof. Such records must be submitted by the salesman to the Department of State with his application for a broker’s license.

(c) Participation in the general real estate brokerage business as a licensed real estate salesman shall consist of active service under the supervision of a licensed real estate broker for at least 35 hours per week for 50 weeks in each year required for qualification under the law.”

[Emphasis supplied.]

Brokers have an affirmative duty to supervise sales personnel. Russo v. Shaffer, 131 AD2d 853 [1987]. The failure to supervise real estate salesmen can lead to the suspension of a real estate broker’s license. In re Latimore, 252 AD2d 217 [1st Dept 1999].

THE EFFECT OF THE LACK OF SUPERVISION OF A SALESMAN BY A BROKERAGE REGARDING COLLECTION OF A BROKERAGE FEE.

In Weissman v. Seiyu, Ltd., 2000 WL 666338 [US Fed. Ct. for the Southern District of New York, 2000], the Federal Court disallowed a real estate brokerage fee where there was no written agreement (which would normally not be a problem because, according to the New York Statute of Frauds, a brokerage agreement may be oral), where the salesman who did the work on the transaction was not supervised by a licensed broker. The court’s reasoning in Weissman was that, by not being supervised by a broker, the person working on the transaction failed to function as a real estate salesman. The court in Weissman stated:

“Defendants argue that Plaintiff is not entitled to the statutory exemption from the Statute of Frauds because he did not meet the statutory definition of “licensed real estate salesman” i.e., a “person associated with a licensed real estate broker.” N.Y. Real Prop. Law § 440(3). Defendants note that plaintiff has claimed only that he was a licensed salesperson but neither in his complaint nor at oral argument did plaintiff allege that he was working with, much less that he was under the supervision and control of a licensed real estate broker…This Court finds that plaintiff has failed to allege facts sufficient to meet the definition of a “licensed real estate salesman” as set forth in N.Y. Real Prop. Law § 442-a.”

But see Hanley v. Sumitomo Bank, Ltd., 1993 WL 362388, at (S.D.N.Y. Sept 14, 1993), aff’d without opinion, 48 F.3d 1212 (2d Cir.1994). (The salesman’s claim was based on an alleged oral agreement. Such an oral agreement is unenforceable under the New York statute of frauds, unless it is entered into by a licensed real estate broker or a salesperson acting under a broker’s supervision and control. N.Y.GEN.OBLIG.LAW § 5–701(a)(10) (1989 & Supp.1993). If in fact the salesman’s association with the broker was a sham, there is no reason to permit him to avoid the written agreement requirement of the statute of frauds.)

Respectfully submitted,

Michelle Itkowitz