Brokerage commissions must be earned.

Two recent New York cases illustrate that a broker earns his commission only when the buyer and seller reach a "meeting of the minds" on all substantial issues of the transaction.

The first case, Helmsley-Spear, Inc. v. Melville Corp. (611 N.Y.S. 2d 240), holds that the mere introduction of a property by a broker to a perspective purchaser does not entitle the broker to a commission.

In the Fall of 1986, when Melville Corp. was considering leasing additional office space in Westchester County, representatives of Helmsley-Spear, Inc. submitted a list of potential lease sites to Melville's president, Daniel Katz. Katz however, immediately informed the broker in writing that Melville will only consider utilizing the broker's services with respect to buildings which it managed or it exclusively represented. Moreover, the letter advised Helmsley-Spear that Melville was not prepared to engage the broker at that time.

Despite Melville's refusal to engage the broker's services, Helmsley-Spear claims that in February 1987, one of its brokers made a "cursory showing" of the Dictaphone Building in Westchester to Melville's real estate manager as a possible building to lease. This building was not managed by Helmsley-Spear nor was Helmsley-Spear exclusively engaged to represent the building.

Two months later, in April 1987, Helmsley-Spear wrote to Melville's real estate manager to advise him that the Dictaphone Building would be available for rent in late 1988 and that Helmsley-Spear claimed it arranged for Katz to view the building and to meet with representatives of the exclusive agent for the property, Cushman and Wakefield. Helmsley-Spear claimed that Melvill's real estate manager asked that the broker not attend the showing and at the same time assured the broker that Helmsley-Spear would be recognized and protected as the broker on any lease made by Melville with regard to the Dictaphone Building property.

Shortly thereafter, Helmsley-Spear wrote to Melville to advise that Related Properties Corporation made an offer to purchase the Dictaphone Building and would lease the building to Melville. The letter also requested that Melville acknowledge that Helmsley-Spear had been instrumental in bringing the Dictaphone property to Melville's attention and that in the event Melville decided to lease the space, a deal would be worked out regarding the brokerage commission. Melville immediately responded in writing to inform Helmsley-Spear that Melville had no relationship with Helmsley-Spear and had no obligation to pay it a brokerage commission.

Helmsley-Spear continued to assist Related Properties in its effort to purchase the Dictaphone Building, for which Helmsley-Spear would receive a $200,000 commission in the event that such purchase took place. However, that deal fell through and no purchase was made.

Another corporation ultimately acquired the Dictaphone Building, which it immediately leased to Melville. Following the execution of the lease, Helmsley-Spear sued Melville seeking brokerage commissions of $980,000, claiming that it had a brokerage agreement with Melville with regard to the leasing of the Dictaphone Building.

Melville moved for summary judgment claiming that by documentary evidence (the correspondence between the parties), as a matter of law there was never any brokerage agreement with Helmsley-Spear.

The Appellate division agreed with Melville that no trial was necessary in this matter, since it was clear from the documents themselves that Helmsley-Spear was not retained to act as broker for Melville.

The court stated that absent a special agreement to the contrary, a broker is not entitled to a commission simply because he initially called the property to the attention of the ultimate purchaser. The court held that the record clearly demonstrates that Helmsley-Spear's role in Melville's leasing of the Dictaphone Building consisted little more than introducing the property to Melville.

The court further noted that Helmsley-Spear did not even claim that Melville promised to "recognize and protect its interest as a broker" even if true, are insufficient to create a binding oral agreement by which Melville became obligated to pay Helmsley-Spear a commission of $980,000.

In fact, documentary evidence, which included Helmsley-Spear's own correspondence, reveals that all of its efforts were geared toward arranging the sale of the Dictaphone Building to Related Properties, which had expressively agreed to pay Helmsley-Spear a commission for its services.

The other case is on a subject more prevalent because it deals with commissions claimed by a broker resulting from a deal which collapsed. (Heelan Realty & Development Corp. v. Skyview Meadows Development Corp. -612N. Y. S. 2nd 192)

Heelan is a broker who was engaged by Skyview to sell Skyview's properties known as the "Meadows" and "Valley." Heelan secured a buyer for "Meadows" at a purchase price of $3.5 million. The same buyer also agreed to buy the "Valley" for the purchase price of $1.8 million. The "Valley" contract was made conditional on the closing of the "Meadows" contract. Both contracts provided that they were subject to the approval by the seller's shareholders, which would be evidenced by a formal stockholder resolution. The "Meadows" contract provided that the buyer had a right to cancel the contract in the event that the buyer was unable to obtain subdivision approval for 137 building lots before a proposed new zoning ordinance could be enacted.

The seller then demanded certain substantial changes to the contact. The buyer, however, would not agree to the changes until it received a letter directly from the Patterson Town Board stating that the subdivision would not be affected by the new zoning ordinance.

The broker, who had authority to close the deal on the sellers' behalf, did not attempt to secure such letter from the Town Board, nor did the seller attempt to secure such letter. Consequently, the buyer did not agree to the seller's proposed changes and thus the seller did not give its corporate resolutions approving the contract. Both contracts for the "Meadows" and the "Valley" were canceled and the broker sued the seller for commission on both properties.

The broker claimed that the commissions were due because the seller wrongfully and arbitrarily did not make an effort to secure the required letter from the Town Board and wrongfully did not continue to negotiate with the buyer to resolve their differences, and that such inaction on the part of the seller prevented a "meeting of the minds" between the buyer and the seller from taking place.

The court disagreed. It ruled that no brokerage commission is earned until the buyer and the seller have a meeting of the minds on all substantial issues. 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 an agreement as to other terms that are essential and customary to real estate transactions. It is only when the seller wrongfully or arbitrarily prevents the completion of a deal does a broker's commission become due.

In this case, the parties could not agree upon certain changes to the contract. The seller would not release its corporate resolutions until the buyer agree to the proposed changes. The buyer would not agree to the seller's proposed changes until it received a letter from the Patterson Town Board indicating that the property could be subdivided into 137 building lots prior to a proposed new zoning ordinance. No such letter was secured. Thus, because a "meeting of the minds" between the buyer and the seller did not take place, the broker was not entitled to his commission. (Edward L. Schiff is senior partner of the law firm of Schiff, Turek, Kirschenbaum of New York City.)