Legal case studies this issue:

• Broker was entitled to commission 18 months after listing agreement expired
• Insurer of rental property manager was required to defend class action suit by renters
• Property owner had no duty to protect invitee from murder by third party
• Single-family residential zone did not permit web-based rentals to vacationers
• No enforceable contract for commission was created by short email regarding property

Research and analysis by Lisa Harms Hartzler,
Sorling Northrup Attorneys

Broker was entitled to commission 18 months after listing agreement expired

In Thomas Hospitality Group v. Bree Enterprises, Inc., Ct. App. Mich., No. 344639 (December 3, 2019), plaintiff real estate broker and defendant signed an exclusive one-year listing agreement for the sale of defendant’s bar. The contract provided, among other things, that if the property was sold at any time after the agreement expired to anyone to whom plaintiff had sent a marketing package, then a 10% percent commission would be due to plaintiff.

Four days before the listing agreement expired, Brian Yaffa emailed plaintiff’s president that he was interested in the property. Plaintiff responded by email and attached a marketing package. The listing agreement expired without any active negotiations pending. Nearly 18 months later, defendant sold the real and personal property to two companies formed by Yaffa but did not pay plaintiff a commission. Plaintiff sued for breach of contract.

The appellate court found the terms of the listing agreement to be clear and enforceable. The parties expressly agreed via an “extension clause” that plaintiff would be entitled to a commission “at any time after the expiration” if the property was sold to someone to whom plaintiff had marketed the property. Plaintiff sent Yaffa a marketing package during the term of the agreement; Yaffa’s usual business practice was to create corporate entities to purchase businesses and was acting on behalf of the companies that bought plaintiff’s property. As the court explained, “when the contract expired defendant still had a conditional obligation under the contract. That the commission was not due when the agreement expired does not mean that it does not need to paid later on.”  The contract was definite and “less than two years was a reasonable time for performance under the circumstances.”

Insurer of rental property manager was required to defend class action suit by renters

In Evergreen Real Estate Services, LLC v. Hanover Insurance Company, 2019 IL App (1st) 181867, defendant Hanover Insurance Company issued insurance policies to plaintiff, Evergreen Real Estate Services, the manager of a residential rental property located in Chicago. Among the coverage Evergreen purchased from Hanover was “professional liability insurance,” which excluded claims arising from unfair or deceptive business practices, including “violations of any local, state or federal consumer protection laws.”

When a number of Evergreen’s tenants filed a class action suit claiming violations of the Chicago Residential Landlord Tenant Ordinance (RLTO), Evergreen tendered the defense to Hanover. Hanover refused to defend or indemnify Evergreen, asserting that the RLTO was a consumer protection law and, therefore, was excluded from the professional liability policy.

The Illinois appellate court acknowledged that in other cases it has held tenants to be consumers who may sue a landlord under the Illinois Consumer Fraud and Deceptive Business Practices Act. However, the RLTO is not merely a remedial statute aimed at protecting consumers against fraud and other unfair or deceptive acts. It “is a two-way street enacted to ‘establish the rights and obligations of the landlord and the tenant’ and to ‘encourage the landlord and the tenant to maintain and improve the quality of housing.’  Both landlords and tenants derive direct benefit from the RLTO, while only purchasers of goods and services derive direct benefit from consumer protection laws.”  Further, a landlord can violate the RLTO through innocent inaction or oversight without having committed an unfair or deceptive business practice.

The court held that the RLTO was not unequivocally a consumer protection law. Because the court is required to read insurance policies narrowly and in favor of the insured, it ruled that Hanover had a duty to defend Evergreen for the claims asserted in the underlying class action suit.

Property owner had no duty to protect invitee from murder by third party

In Witcher v. 1104 Madison St. Restaurant, 2019 IL App (1st) 181641, Tony Adewoye was patronizing the defendant business when he was stabbed in the neck and killed. The administrator of his estate sued the defendant for wrongful death, contending that it failed to provide proper security.

In general, there is no duty imposed on landowners to protect others from criminal attacks by third persons on their property. However, a possessor of land, such as the owner of a business that is held open to the public, might have a duty to protect its patrons against criminal attacks if prior incidents give the owner knowledge of the danger facing the patrons. The question is whether (1) the criminal activity was reasonably foreseeable; (2) the likelihood of injury; (3) the magnitude of the burden to guard against the injury; and (4) the consequences of placing that burden upon the possessor.

In this case, police incident reports for the prior five years at the restaurant provided by the plaintiff were inadequate evidence that the attack on Adewoye was in any way foreseeable. These reports consisted of “garden variety crimes correlated to nightlife activity:  leaving trash around neighboring homes, fights outside the establishment, noise disturbances, and the like, including a few instances of assault and battery.” However, there was nothing similar to an intentional and targeted stabbing of a patron. “Generalized crime” in the past could not “have given the defendant notice of the risk that materialized when Adewoye was killed.”  Only when prior similar crimes exist does a defendant have a duty to take precautions against their recurrence. The appellate court affirmed summary judgment in favor of the defendant.

Single-family residential zone did not permit web-based rentals to vacationers

In Slice of Life, LLC v. Hamilton Township Zoning Hearing Board, 207 A.3d 886 (Pa. S. Ct. 2018), the Pennsylvania Supreme Court was asked to determine whether a zoning ordinance that defined “family” as requiring “a single housekeeping unit” permitted a purely transient use of a property located in a residential zoning district.

The zoning district in question permitted single-family detached dwellings. A dwelling was defined as a building or structure to be used as “living quarters for one or more families” but did not include hotels, motel rooming houses, or other tourist homes. “Family” was defined as “one or more persons, occupying a dwelling unit, related by blood, marriage, or adoption, living together as a single housekeeping unit and using cooking facilities and certain rooms in common.”  The ordinance did not define “single housekeeping unit,” but the court explained that this term was a term of art widely used in zoning ordinances throughout the country as requiring the person or persons residing in the home to function as a family and to be “sufficiently stable and permanent” and not “purely transient.”  Therefore, by using the term “single housekeeping unit” to define “family,” the ordinance clearly and unambiguously excluded purely transient uses in the zone.

The court acknowledged a property owner’s constitutional right to the use and enjoyment of his or her property. But that right is permissibly limited by a zoning ordinance that is substantially related to the protection of the public health, safety, morality and welfare, i.e., the “police power.”  The establishment of residential zoning districts is a valid police power. Limiting single-family residential neighborhoods to permanent, stable families “creates a sense of community, cultivates and fosters relationships, and provides an overall quality of a place where people are invested and engaged in their neighborhood and care about each other.”  Short-term tenants have little interest in these goals.

In this case, the owner of the residence was an LLC whose sole member was an individual who lived in New York City, had never lived in the township, and whose business consisted of investing in residential properties and advertising them on vacation rental websites. The residence in question was rented approximately 25 times a year for a minimum of two nights and a maximum of one week. Neighbors had on several occasions called the police to report late-night noise and parties. The court concluded that the owner’s use of the property was for purely transient occupancy and, therefore, was not permitted in the zoning district.

No enforceable contract for commission was created by short email regarding property

In Douglas Elliman LLC v. Firefly Entertainment Inc., U.S. Court of Appeals, Second Circuit, No. 19‑0279 (November 25, 2019), the defendant entertainment manager purportedly representing a celebrity contacted a New York City listing agent associated with the plaintiff real estate company to inquire about a listed property. The agent suggested another nearby property (“153 Franklin”) would better suit the celebrity’s need for a building with internal access to a garage. A representative of the defendant sent this email to the agent:

This email is intended for your use with the owner of 153 Franklin. This is to confirm that we Firefly Entertainment/13 Management are working with you solely regarding the viewing and any other needs at 153 Franklin. There will not be any other lines of communication outside of myself. Thank you and please let me know if you need anything further.

The agent showed the property to the defendant, measured the building, introduced the defendant to the building owner, obtained blueprints and gave them to the defendant, and engaged in preliminary negotiations with the owner regarding a potential sale. The agent worked on this matter for approximately two months. More than nine months later, the celebrity purchased 153 Franklin through a corporate entity. Another real estate broker closed the transaction and received a commission. Plaintiff did not.

Plaintiff sued defendant for breach of contract, alleging that the email exchange constituted an “unambiguous written promise of sole right to represent the [celebrity] as buyer regarding” the property, that defendant breached this promise, and that plaintiff was owed a six percent commission of $1,080,000. The district court dismissed plaintiff’s suit because it lacked “most, if not all, of the material terms of a real estate brokerage agreement, including the scope and duration of the relationship and the fee.”

The federal court of appeals, applying New York law, held that a contract must be “reasonably certain in its material terms in order to be legally enforceable.”  However, the court continued, “where it is clear from the language of an agreement that the parties intended to be bound and there exists an objective method for supplying a missing term, a court should endeavor to hold the parties to their bargain.”  For example, an objective method for supplying a missing price term might be “ascertained by reference to an extrinsic event, commercial practice or trade usage” or by describing a methodology for fixing the missing price.

In this case, the court found the email “so indefinite that it is not at all clear the parties were intending to enter into an exclusive agency agreement”, nor did it contain any terms typically found in a contract, such as commission, duration, routes to termination, the name of a potential buyer, or remedies in the case of breach. Even if the parties intended to form a contract, there was no objective standard to apply or any reference to commercial practice or trade usage. The court affirmed the district court’s dismissal of plaintiff’s suit.