In a Decision issued by the Massachusetts Supreme Judicial Court on February 2, 2023, the SJC granted further appellate review to clarify the law in cases involving breach of an exclusive real estate broker agreement. The Court held that the Statute of Frauds does not require that a contract to pay for the services of a licensed real estate broker be in writing. The Court also found that if the broker could prove the existence of the contract and breach, despite the contract not being in writing, the broker could recover a commission on a sale in which the broker was not involved in as expectation damages.
Here the broker sued two former clients for breach of an alleged oral agreement to act as an exclusive broker for one year for their purchase of a new home. The client found a home on their own without referring the listing to their broker and did not pay her a commission.
The broker sued and the Trial Court dismissed due to the lack of an oral agreement. The Appeals Court reversed holding that the “[t]he Statute of Frauds expressly states that it ‘shall not apply to a contract to pay compensation for professional services of…a licensed real estate broker or real estate salesman acting in their professional capacity’ G. L. c. 259, § 7.” The SJC followed that reasoning as well.
The SJC then turned to the remedy provided for such a breach of an exclusive buyer’s agent agreement, that being expectation damages, i.e. full commission (not just compensation or fair value for services provided by the broker). The SJC endorsed the notion of expectation damages or lost profits in these circumstances.
The SJC declined to adopt a rule that precludes recovery of expectation damages unless the contract on which the broker relies contains a clear statement that “the broker is entitled to receive commission…regardless of whether the broker played any role in effecting the desired sale or purchase.” “This is a private transaction between private parties. We ‘accord individuals broad powers to order their affairs through legally enforceable agreements.’” The court did recognize, however, a legitimate concern that buyers and sellers, unlike brokers, are involved in real estate transactions infrequently and are thus unfamiliar with their legal rights.
The takeaway from this case is that any party engaging a real estate broker should put their contract in writing. They should also be careful about communications with a broker that could lead to a claim that there is an oral contract, as brokerage contracts in Massachusetts are not required to be in writing. On the other hand, this Decision, including the lost profit expectation component, could be beneficial to brokers who are strung along by savvy brokers who try to avoid paying a legitimate commission.
For a copy of the case [CLICK HERE].