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Exclusive Right to Sell versus Exclusive Agency
11/11/2014
Exclusive Right to Sell versus Exclusive Agency

On June 10, 2014, New York’s highest court changed the rules a little bit on an exclusive right of sale. Morpheus Capital Advisors LLC v UBS AG, 23 N.Y.3d 528 [2014]. With an exclusive right of sale the client cannot make any deal on its own without becoming liable for the commission. With an exclusive agency, the client can avoid the commission upon making a deal directly as long as it was not procured by another broker. In the past, a broker might have believed that it had an exclusive right of sale by merely stating in the contract with the client that the agreement was for an “exclusive right of sale.” That is no longer going to be enough. The law is that a contract intended to give the broker an exclusive right of sale must clearly and expressly provide that the client agrees to forfeit the right to directly make a deal without incurring the broker's fee, or the contract must exclude the client from independently negotiating a sale. Agreements that are not going to be sufficient to give the broker an exclusive include [1] a provision for an exclusive right to solicit parties for any potential transaction involving the asset during the term of the agreement, or [2] a provision that the broker shall receive the fee upon the closing of any transaction involving the sale or transfer of the asset.

The examples approved by the court where an exclusive right of sale will be recognized include [1] an agreement for payment of the commission regardless of whether the broker has actually procured the purchase agreement, or [2] that the client will proceed only through the broker and will not directly or through others negotiate the sale, or [3] that the client must refer all inquiries or offers to the broker for negotiation.

Therefore, any agreement intending to give the broker a genuine exclusive should not only state that the broker is getting an exclusive right of sale but also include one of the above three examples approved by the court.

The court extended this rule to virtually every kind of transaction, not just one for a commission on the sale or lease of real estate. The rule would also appear to apply to a recruiter seeking an exclusive right to fill a client’s job opening.

 

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