Opinion
602339/06.
Decided August 4, 2008.
Defendants LVMH, Inc. (LVMH) and Cushman and Wakefield, Inc. (CW) (together, Defendants) move for summary judgment dismissing the complaint (CPLR 3212).
Background
This action arises out of fruitless negotiation for the lease of commercial space located on the 6th floor of 1 East 57th Street, in Manhattan, New York. Plaintiff Williamson, Picket, Gross, Inc. (WPG) seeks to recover a brokerage commission based on the amount that it claims it would have received had the transaction been completed.
In 2000, LVMH purchased and began to renovate the building at 1 East 57th Street, with the intention of leasing certain floors. In June of 2005, WPG showed its client, Antiquorum USA, Inc. (Antiquorum), the sixth floor of building. After viewing the space and receiving information regarding pricing, on June 14, 2005, WPG submitted a draft proposal for the lease of the premises. The draft proposal contained a provision that a brokerage commission would be paid to WPG upon the execution of the lease. It stated,
"Landlord shall pay Williamson, Picket, Gross Inc. [WPG] one (1) full commission upon execution of the lease for the subject space . . . This proposal is not a binding legal agreement." Fressle, Exh. C.
On June 22, 2005, CW submitted a "non-binding counter-proposal" to WPG. Kapchan, Exh. D. Around this time, CW explained that because another tenant was still in possession of the 6th floor, the space would not be available for approximately another four months. On July 21, 2005, CW and WPG reached a tentative understanding, and certain terms, including a limitation of liability provision, were recorded on a term sheet and signed by Antiquorum.
This limitation stated,
"The terms and conditions set forth shall not be binding upon the Landlord or Tenant until such time that a lease and any related documents have been fully executed by both Landlord and Tenant, and mutually exchanged." Fressle, Exh. H.
In August of 2005, Antiquorum received the first draft of the lease and agreed to wait for the other tenant to vacate the space until January 1, 2006. On November 14, 2005, LVMH issued a second draft lease setting forth June 1, 2006 as the lease commencement date. Soon after, LVMH delayed the lease commencement date again, until September 2006. During this time, Antiquorum and LVMH continued to negotiate terms of the lease, including the exact date of possession, the number of auctions that Antiquorum would be able to conduct per year, and the amount of the security deposit.
In May of 2006, LVMH contacted Antiquorum with a proposal containing a more specific date of possession, but proposed increasing the rent by $5 per square foot, and decreasing the rent abatement from seven to four months. On June 6, 2006, Antiquorum withdrew its offer to lease the building in writing and severed negotiations with LVMH.
To this date, the 6th floor remains unoccupied. CW received no commission from renting the premises. After Antiquorum severed lease negotiations, WPG demanded a real estate commission from Defendants. Subsequent to Defendants' refusal to pay, WPG commenced this action, asserting three causes of action, for real estate commission, compensation for services performed, and an account stated.
Discussion
Defendants move for summary judgment on the ground that WPG fails to raise a triable issue of fact that a binding agreement existed that entitled WPG to a commission. Defendants cite to the undisputed fact that each lease proposal entertained by the parties contained a provision that stated that LVMH would pay WPG "one full commission upon execution of the lease," and that a lease was never executed. Further, the proposals state that,
"The terms and conditions set forth above shall not be binding upon the Landlord or Tenant until such time that a lease and any related documents have been fully executed by both Landlord and Tenant." Kapchan, Exh. D.
A party cannot be contractually bound to an agreement when the agreement clearly states that it is not binding until a formal agreement has been executed ( Jordan Panel Systems Corp. v. Turner Construction Company, 45 AD3d 165, 169 [1st Dept 2007]).
Further, where the parties contemplate future negotiations and the execution of a formal instrument, a preliminary agreement to enter into a future agreement generally does not create a binding contract ( Brown v Cara, 420 F3d 148, 153 [2d Cir 2005]). This is precisely the situation here: the parties entered into a preliminary agreement, agreeing to several major terms while leaving others open, in addition to agreeing to pursue future negotiations in an attempt to reach a final agreement for the rental of the premises to Antiquorum.
WPG contends that the provisions in the proposals that state that a commission is not due until a lease is executed is not relevant, where, as here, Defendants negotiated in bad faith. A party's bad faith conduct in preventing the consummation of a lease may entitle a plaintiff recovery of a share of a real estate brokerage commission ( Winick Realty Group, LLC v Austin Associates , 51 AD3d 408 [1st Dept 2008]).
WPG had no express agreement with LVMH and CW for the payment of a commission, and CW received no commission as a result of the transaction. Additionally, WPG fails to raise a triable issue of fact that Defendants engaged in bad faith conduct. LVMH and CW allege that they acted in good faith by accepting many of Antiquorum's lease changes and remaining in constant and open communication regarding the expected possession date of the premises.
WPG attempts to raise a triable issue of fact by asserting that LVMH acted in bad faith by raising the rent by $5 per square foot. However, LVMH and CW point out that the fact that the Manhattan real estate market was changing, and further allege that the increase resulted in a rent amount that is still well below market rate, assertions that WPG does not refute.
Additionally, WPG cannot assert a contract claim against LVMH for recovery of a commission. In order to recover on a contract claim for a real estate brokerage commission, WPG must establish that it had an agreement, either express or implied, with LVMH, and that it was the procuring cause of the transaction ( Greene v Hellman, 51 NY2d 197). WPG fails to demonstrate that an agreement existed with LVMH. Rather, LVMH had an exclusive brokerage agreement with CW, not WPG. Further, WPG fails to demonstrate that it was the procuring cause of the transaction, where no lease was executed. WPG points to the July 21, 2005 proposal as evidence of an agreement between WPG and LVMH. However, this proposal contains a provision expressly stating that it is non-binding.
Moreover, WPG's contention that it would have been the procuring cause of the transaction but for the bad faith of the Defendants is unsupported by the evidentiary record, where WPG was not prevented from participating in the lease negotiations at any time ( compare Winick Realty Group LLC, 51 AD3d at 408.
For similar reasons, WPG cannot assert a contract claim against CW. It is well-established that a cooperating broker is entitled to compensation only if the other broker has actually received a commission ( Valdina v. Martin , 47 AD3d 1159 , 1159 [3rd Dept 2008]). Pursuant to the exclusive listing agreement between CW and LVMH, CW was entitled to commission only if a lease was fully executed. Berti, Exh. A.
Consequently, as a cooperating broker, WPG is entitled to a share of any commission that CW received. However, it is undisputed that a lease was never executed, and that CW never received commission for this transaction. Therefore, because CW did not receive a commission, WPG is not entitled to any recovery.
WPG counters again that, but for Defendants' bad faith repudiation of the lease negotiations, the lease would have been executed and WPG would be entitled to a commission. However, WPG fails to raise a triable issue that Defendants acted in bad faith.
Further, LVMH contends that WPG did not produce a tenant who was ready, willing and able to execute the lease on terms acceptable to LVMH. 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 ( Lane-The Real Estate Dept. Store, Inc. v Lawlet Corp., 28 NY2d 36, 42).
WPG relies upon the July 21, 2005 proposal as evidence that a meeting of minds existed between WPG and Defendants. It contends that the continued negotiations establish that the parties intended to execute the lease.
LVMH and CW point to the numerous terms left open and undecided between the parties as proof that there was no "meeting of the minds." These open terms include the date of possession, insurance, security deposit, overtime charges for air conditioning and heat, certain default provisions, restrictions on the number of auctions that Antiquorum could conduct in a year, the tenant's obligations to restore the Premises at the end of the lease, relocation provisions, sublet issues, tax escalations, and other issues (Affidavit of Berti, ¶ 9, Affidavit of Ingram, ¶ 7).
Thus, while there may have been agreement as to certain issues, the evidentiary record demonstrates that the parties did not reach a meeting of the minds concerning all of the material terms of the contract. "Mere agreement as to the price on a proposed sale of real property does not constitute a meeting of the minds of the buyer and the seller absent agreement as to other terms that are essential and customary to a real estate transaction" ( Heelan Realty and Development Corp. v Skyview Meadows Development Corp., 204 AD2d 601, 602-3 [2d Dept 1994]; Restatement [Second] of Agency § 445, comment d ["When the principal has furnished the broker with only part of the terms, with the understanding that further details are subject to negotiation between the principal and the customer, the principal, unless acting in bad faith, is free to terminate such negotiations without liability to the broker"]).
Here, the parties did not agree on the material terms of the contract. Because the parties did not reach a meeting of the minds, no contract existed, that could give rise to a cause of action for breach of contract.
WPG suggests that LVMH changed the terms of the lease with the intention of preventing its execution, that gives rise to an inference of bad faith. However, WPG provides no evidence that LVMH intended to prevent the execution of the contract. Rather, the evidentiary record demonstrates that LVMH remained in constant communication with Antiquorum, and made repeated attempts to consummate the transaction. Therefore, WPG's first cause of action for a commission should be dismissed.
WPG additionally seeks to recover compensation for the reasonable value of its services on a quantum meruit theory. In order to recover under quantum meruit, a party must establish the performance of the services in good faith, the acceptance of the services by the person to whom they are rendered, and an expectation of compensation ( Heller v Kurz, 228 AD2d 263, 264 [1st Dept 1996]).
Although WPG demonstrates that it performed services in an attempt to procure a lease for its client in good faith, it cannot demonstrate that it performed services with the expectation of compensation, in light of the failure of WPG and LVMH to come to a meeting of the minds necessary to form an implied contract. Further, a broker is not entitled to a commission for unsuccessful efforts ( Orenstein v Brum , 27 AD3d 352 [1st Dept 2006]).
For these reasons, WPG is not entitled to receive compensation, where the transaction never came to fruition by the execution of the lease. Consequently, the cause of action for quantum meruit must be dismissed.
WPG's cause of action for an account stated is similarly meritless. In order to recover for an account stated, WPG must demonstrate that LVMH received and retained a bill without objection ( Fred Ehrlich, P.C. v Tullo, 274 AD2d 303 [1st Dept 2000]).
The evidentiary record demonstrates that WPG sent an invoice to LVMH for the amount it claims is owing for commission on June 12, 2006. On June 21, 2006, LVMH promptly responded, stating that WPG "is not due a commission." Berti, Exh. P.
WPG contends that an exception exists that would entitle it to recover for an account stated, where the actions of the defendant prevent the natural progress of the transaction. However, WPG has failed to come forward with any evidence tending to establish that Defendants acted in bad faith, or that their conduct otherwise prevented the execution of the lease. Therefore, WPG fails to raise a triable issue of fact as to its cause of action for an account stated.
Accordingly, it is
ORDERED, that Defendants' motion for summary judgment is granted and the complaint is dismissed with costs and disbursements to defendant as taxed by the Clerk of the Court upon the submission of an appropriate bill of costs; and it is further
ORDERED that the Clerk is directed to enter judgment accordingly.