Substantial compliance can get you by, but safer is always better with big money (and a house) on the line
The Appellate Division of the New Jersey Superior Court recently addressed the often-debated topic of the “three day review” period.
In Conley v. Guerrero, the central issue was whether the Defendant-Seller of a residence effectively terminated the Contract for Sale with Plaintiffs-Buyers during the “three day review” authorized by the Contract for Sale.
The facts in the case were undisputed. The Contract signed by Buyers and Seller included the standard attorney review provision, which provides that notice of disapproval must be sent to the realtor by “certified mail, by telegram or by delivering it personally.”
The Attorney Review Clause in the Contract, stated:
The Buyer or the Seller may choose to have an attorney study this Contract. If any attorney is consulted, the attorney must complete his or her review of the Contract within the three-day period. This Contract will be legally binding at the end of this three-day period unless an attorney for the Buyer or the Seller reviews and disapproves of the Contract. . . . . If an attorney for the Buyer or the Seller reviews and disapproves of the Contract, the attorney must notify the REALTOR(S) and the other party named in this Contract within the three-day period. Otherwise this Contract will be legally binding as written. The attorney must send the notice of disapproval to the REALTOR(S) by certified mail, by telegram or by delivering it personally. The telegram or certified letter will be effective upon sending. The personal delivery will be effective upon delivery to the REALTOR's office. The attorney may also, but need not, inform the REALTOR(S) of any suggested revision(s) in the Contract that would make it satisfactory.”
In this case the Plaintiffs signed the contract on January 12, 2014. The Defendant signed the Contract two days later and the executed Contract was delivered to the Buyers on January 15, 2015. As a result of a three-day weekend, the attorney review period extended to Tuesday, January 21, 2014.
After the agreement was executed, Seller's agent received competing offers to purchase the property. The Seller entered into a Contract with a third party on January 16, 2015 and on January 20, 2015 Seller's attorney sent a letter advising Plaintiffs' attorney that the agreement was terminated, stating, “This will confirm that the above referenced contract has been terminated by the seller and the realtors are hereby authorized to release the initial deposit monies to the buyers.”
The letter was sent by email and facsimile to Plaintiffs' attorney and the Buyers' agent was “cc'd” on the email. It was undisputed that Plaintiffs' attorney and the agent received the letter on January 20, 2014. Additionally, Plaintiffs did not deny that they also received notice of the letter.
On January 23, 2014, Plaintiffs' attorney faxed a letter to Defendant's attorney asserting that the original contract was in “full force and effect” because “the 3 days within which an attorney may terminate this contract has expired.” Thereafter Plaintiffs' attorney and Defendant's attorney exchanged emails disputing the effectiveness of the January 20, 2014 notice. Plaintiffs argued that the January 20th termination was ineffective because it was not sent in accord with the contract's attorney review provision, which states that notice of disapproval must be sent to the realtor by certified mail, by telegram or by delivering it personally. In this case, the agent was only notified via email.
Plaintiffs argued that the Defendant was required to strictly adhere to the contractual provision specifying the methods of delivery, even though Plaintiffs' counsel admitted that the Plaintiffs received notice that the Defendant cancelled the Contract for Sale. In this case the agent was only notified via email. However, Defendant's counsel asserted “it has become the standard and customary practice in residential real estate transactions to use email and facsimile notification at the time of contract disapproval in lieu of a certified mailing.”
The Appellate Division ruled that defendant's counsel's disapproval of the contract was effective because there was substantial compliance with the Notice provision. The Court noted that the method-of-delivery provision was designed to protect the interests of the real estate professionals, not the contracting parties. See Peterson v. Pursell, 339 N.J. Super. 268, 276 (App. Div. 2001) (noting that the interests of the 10 A-3796-13T2 broker and the party “may not be congruent”); Denesevich v. Moran, 211 N.J. Super. 554, 557 (App. Div. 1986) (declining to treat the broker as a “fiduciary so as to impute notice to the party” in part because “a broker's role is to bring the parties together and act as a conduit for negotiations”). By contrast, the three-day-review itself was designed to protect parties from being bound by realtor-prepared contracts, without the benefit of legal counsel. Levison, supra, 215 N.J. Super. at 276. As an aside, the Court affirmed that any form of actual notice suffices as pertains to the actual buyer.
Noting that enforcement of the method-of-delivery provision in this case would result in a forfeiture of Defendant's right to disapprove the contract and that given Defendant's substantial compliance, that forfeiture should be avoided. The Court went on to state that “to the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange.'” Gazis v. Miller, 378 N.J. Super. 59, 65 (App. Div. 2005) (quoting Restatement (Second) of Contracts, § 229 (1981)), aff'd, 186 N.J. 224 (2006).
Finally, the Court noted that it was not disputed that actual notice of termination was received by the Buyers, their attorney and real estate agent. The Court went on to state that it was not establishing a general rule that delivery to the realtor by email satisfies the prescribed method of delivery. Rather, based on the facts and circumstances, the notice of disapproval effectively the Contract for Sale.
This case establishes that the proscribed method of disapproval is not hard and fast. However, it is clear that the best practice is to send the Notice of Disapproval to the Realtor via certified mail. The attorneys at DeMichele and DeMichele,P.C. also send Notice of disapproval via certified mail to the Buyer or Seller. This practice eliminates any doubt as to whether or not the other party was sent Notice of disapproval.
If you are buying or selling a home, do not hesitate to contact
the real estate attorneys at DeMichele & DeMichele. Contact
us for a free initial consultation. You can also reach us by telephone (856) 546-1350.