An appellate court has ruled that a dispute concerning a $486,000 real estate commission over a rejected offer for an apartment building used by Monroe College in New Rochelle, may proceed.
Westchester Supreme Court had dismissed a complaint filed by real estate broker Gjon Kalaj of Mount Vernon against 21 Fountain Place LLC and David A. Roth.
The Second Appellate Division reversed the lower court ruling on Feb. 6.
The 55-unit building at 21 Fountain Place was leased to Monroe College for student housing at $800,000 a year. Monroe was also responsible for paying the real estate taxes and operating expenses.
Roth’s 21 Fountain Place LLC, an affiliate of Palladium Management in Manhattan, bought the property for $4,125,000 in 2012.
In 2015, Roth was working on refinancing the debt, according to court records, but was also interested in selling the building.
He wanted $13 million for the property, Kalaj states in an affidavit, but if Kalaj could get more than $12 million Roth would pay a $500,000 commission. Later, the commission was set at 4 percent.
“Get me over 12,” Roth reportedly said in a telephone conversation with Kalaj, “and I’ll give you 4 points.”
Roth wanted an all-cash, noncontingent deal.
Kalaj claims he had three potential buyers, and two of them, LRE Management and Duke Properties, looked at the building.
Duke offered $11.9 million. Roth countered at $12.6 million. Duke offered $12,150,000, no financing, $500,000 down payment, 45-day due diligence period and the closing 75 days after contract signing.
Then Roth, according to Kalaj’s affidavit, “started to act weird and evasive.”
Roth had discovered that Duke had arranged for 70 percent financing from the same bank that Roth was using to refinance its debt.
Kalaj claims that Roth realized he could refinance for $8.5 million, more than double what he had paid for the property, keep the profits, keep the building and pay for the new debt with the rents.
He claims that Roth then imposed unreasonable conditions to kill the deal and avoid paying the commission.
Roth “had the right not to sell to the buyer produced by me,” Kalaj states in his lawsuit, “but they still owe me my commission.”
Roth and his firm argued that there had been no “meeting of the minds” with Duke on the essential terms of the deal. They had not agreed on warranties, for instance, or the due diligence period or the down payment.
Kalaj also knew, Roth argued, he was trying to refinance and was not committed to selling.
Ezra Dweck of Duke Properties supported Roth’s position. He says in an affidavit that he knew about the refinancing and that there was a possibility it would not be sold.
He submitted two letters of intent that were conditioned on reaching a mutually acceptable contract. The letters did not commit Duke to buying the property, and since no contract was drafted, Dweck said, “it cannot be said that there was a meeting of the minds.”
He was not surprised when Roth decided to refinance instead of sell.
“At that point,” Dweck said, “we simply walked away from the proposed transaction.”
Kalaj argues that he was promised a commission for finding a buyer who was ready, willing and able to buy the property at the essential terms set by Roth, and that he had done so.
Roth and his firm argue that the commission was due only if the property was sold, “which it was not.”
Westchester Supreme Court Justice Mary H. Smith found Roth’s position persuasive.
It appears that Kalaj put himself at risk, she said in her decision granting a motion to dismiss the complaint, because he knew that Palladium was also trying to refinance the building.
“There is no evidence that defendants interfered in any way with a fait accompli sale here,” she says. “There is evidence of a very tough continuing bargaining process, which does not necessarily meet the standards of bad faith dealing.”
But the appellate court found, in reversing Smith’s decision, that Roth and his firm had failed to establish an entitlement to dismissal.
The evidence in the case, the justices ruled, reveals “a fundamental dispute about the terms of the oral brokerage agreement.”