Connecticut Real Estate Brokers Should Consider Adding Outside Date to Listing Agreements following Connecticut Appellate Decision.
July 30, 2021
Reserve Realty, LLC vs. Windemere Reserve, LLC
In the Connecticut Appellate Court Decision released June 22, 2021, Reserve Realty, LLC vs. Windemere Reserve, LLC, 205 Conn. App. 299 (2021), the Court determined that an exclusive right to sell/lease listing agreement was unenforceable by the broker under Section 20-325a of the Connecticut General Statutes because the term of the broker’s exclusive right to sell and lease under the listing agreement (or the “duration of authorization”) was indeterminable (and potentially indefinite) at the time the listing agreement was executed. The term or duration of the unenforceable listing agreement in Reserve Realty “could be calculated only by reference to an uncertain future event” (the sale or lease to a third party) and did not “provide a ceiling on the ultimate amount of time the listing agreement could last.” Specifically, the offending provision read substantially as follows:
“The term of this Agreement shall begin at the time Developer becomes the owner . . . and be for a period of One Hundred and Twenty (120) months from the date of the first conveyance of an individual unit or executed lease to an unrelated party of Developer. . .”
In Reserve Realty, the “first conveyance” or “executed lease” from which the 10 year period was to commence were events that were neither (1) certain to occur nor (2) certain to occur within a known or specified time period.
Connecticut Listing Agreements Must Comply with CGS 20-325a (and applicable regulations) to be Enforceable.
In order for a broker to enforce the terms of a commercial listing agreement in Connecticut, the listing agreement must comply with certain specific statutory and regulatory requirements. Specifically, it must either satisfy the “long form standards” set forth in CGS 20-325a (b) or, for commercial transactions, the “commercial short form standards” set forth in CGS 20-325a (c). Absent full compliance with the long form standards or commercial short form standards, a broker can try to hang its hat on a savings clause in CGS 20-325a (d) by proving (1) it would be inequitable to deny recovery of a commission and (2) that the listing agreement is in substantial compliance with certain elements of the long form standards or commercial short form standards.
Under both the long form standards (and Subsection (d) of § 20-328-6a of the Regulations of the Connecticut State Agencies, which governs commercial listing agreements) and the commercial short form standards, all commercial listing agreements must state the “duration of the authorization.” The Reserve Realty case further explains that a potentially indefinite duration is not an acceptable duration. Instead, the duration of the listing must be measurable and definite in order to comply with both the long form standards and the short form standards. Although the language in the statutes and regulations do not expressly prohibit indefinite durations, the court examined the common and legal use of the word “duration” and concluded that the word “refers to an amount of time that is capable of being measured.” The court further reasoned that because an exclusive listing agreement is a restraint on an owner’s ability to freely alienate its property (i.e., limitation on the owner ability to freely sell or lease its property), it is critical that it contain a definite duration of time. Although it is possible that the outcome in Reserve Realty might have been different if the listing agreement at issue had not been an exclusive listing agreement, we do not believe it is prudent for brokers to rely on this distinction.
The Reserve Realty story may not be finished as just last week the broker/plaintiff asked the Connecticut Supreme Court for permission to file an appeal of the Appellate Court’s decision. For now, however, the takeaway for Connecticut brokers is that if you want your exclusive listing agreement to be enforceable, you should be certain that the duration or term is not indefinite and is certain and ascertainable at the time the listing agreement is entered into. And if you must have a term or duration linked to future events that have not yet occurred, then you should include a reasonable fixed outside date by which the listing agreement terminates or by when such events must occur.
This article is for general interest and education only and does not constitute legal advice or an opinion. The reader is encouraged to seek legal counsel before utilizing any suggestions contained in this article.