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Those Involved in New Jersey Real Estate Need to Know About Procuring Cause

If you are in the market for a new home, you may not be aware of the legal principle of “procuring cause,” but many New Jersey realtors are painfully aware of the ramifications of it. In the swirl of open houses and realtors involved in finally deciding upon a home, procuring cause helps determine which realtor is entitled to profit from the sale.

New Jersey law acknowledges that more than one real estate broker may be involved in developing the interest of a potential buyer in a home, and that often “one reaps what another sows.” Ordinary services that do not result in a home sale are considered the cost of doing business. Procuring cause enters in when the broker brings together a buyer and an owner with “no substantial break in the ensuing negotiations,” at which time the broker is considered to be the “efficient cause of the sale” and entitled to a commission. Further, New Jersey courts have found that negotiations do not need to be uninterrupted if the broker can establish his or her continuity in bringing the transaction to a conclusion. But a broker may be denied commission if negotiations break off and the broker abandons his or her efforts or if there is a “substantial break” in the negotiations and the broker does not help conclude the transaction.

Understandably, what counts as a “substantial break” can be the source of controversy and even litigation. Courts have found that a potential buyer’s passivity does not necessarily equal purposeful abandonment. Also, a seller’s acceptance of different terms than those in the listing agreement does not interrupt procuring cause. Further complicating the issue are sales occurring after expiration of an extension period in an exclusive listing agreement. Some courts look for evidence of “meeting of the minds” between seller and buyer or otherwise evidence of bad faith in deciding whether to apply the procuring cause doctrine. The area can be thorny, and all sides need effective legal representation.

Procuring cause finds its roots in contract law and the equitable principle that a person should not be allowed to enrich himself unjustly at the expense of another. Courts look for evidence of notice that a real estate broker expected payment when performing services and have allowed brokers to recover for services even though a contract may prove unenforceable because of lack of agreement on essential terms such as the amount of the broker’s commission. Courts rely heavily on terms of contracts drafted between buyers and sellers and will try to enforce them first before looking to other legal principles.

Also entering the equation is the Statute of Frauds, which requires that agreements for the sale of real estate be in writing to protect the public from fraudulent dealings. New Jersey Statute 25:1-16 requires a writing indicating the principal’s transfer of authority to the broker and the amount or rate of commission, stating that an oral agreement is enforceable only if memorialized in writing within 5 days of the oral agreement. Evidence of procuring cause will not overcome a failure to satisfy the Statute of Frauds.

The experienced New Jersey real estate lawyers at McLaughlin & Nardi can help with all aspects of real estate planning, including drafting solid agreements for meeting all expectations. We also have experienced mediators and litigators when disagreements arise. To discuss how we can help, please e-mail or call us at (973) 890-0004.