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Broker-Prepared Contracts in NJ & Attorney Review Breaking new Ground, by Vincent J. Gallo, Esq.

posted Mar 26, 2014, 6:57 AM by Pete Weinman

Vincent J. Gallo, Esq. is the Chair of the Richmond County Bar Association's Real Property Committee.

In a March 14, 2014 New Jersey Superior Court decision in the case of Conley v. Guerrero, the Court broke new ground as it relates to the rescission of a broker-prepared residential real estate contract during a three-day attorney-review period. In compliance with what is commonly referred to as Opinion 26, as handed down by the New Jersey Supreme Court in 1983, it was held that a broker-prepared residential real estate contract could be rescinded, for any reason or no reason, during a three-day attorney-review period, and that notice of the rescission had to be communicated by certified mail, telegram or personal delivery. In breaking new ground, the Court in the Conley decision ruled that rescission may be properly communicated now by either FAX transmission or by E-Mail, interjecting common sense in the ruling by holding that in 1983, such means of communication (FAX or E-Mail) were virtually unheard of and that "may now be time to amend the dated notice provisions contained as boilerplate within nearly every residential real estate contract in New Jersey."

In the Conley case, both the Purchaser and Seller executed a broker-prepared residential real estate contract, and within the three day review period, the Seller received better offers that led to a bidding war. During that same period Seller’s counsel verbally notified the prospective Purchaser that their offer was not acceptable. The prospective Purchaser acknowledged by hand-written letter receipt of such notice of cancellation, while at the same time, Seller’s counsel also notified the prospective Purchaser’s attorney and realtor by FAX and E-Mail that the Contract was rescinded. Seller then signed another Contract and litigation was commenced by the original prospective Purchaser.

The Court held that the purpose of the attorney-review clause is to protect parties from being bound to broker-prepared contracts without the opportunity to obtain protection of their interests. It went on to state that in the case at hand the Seller’s breach was minor as it was undisputed that the prospective Purchaser was on actual notice of the Seller’s termination within the three-day period for attorney review, and since the essential purpose of the notice provision is to ensure actual notice, that was accomplished here.

The three day attorney-review clause stems from the case entitled New Jersey State Bar Association v. New Jersey Association of Realtor Boards, 93 N.J. 470 (1983). The settlement in that case allowed realtors to continue preparing residential real estate sales contracts which provided for a the three-day attorney-review clause that specified that the Contract could be canceled within the three-day period, and that the rescission notice had to be effectuated by certified mail, telegram or personal delivery, and those modes are specified at N.J.A.C. 11:5-6.2(g)(2). It was noted during the course of the trial by the Seller’s counsel that the vast majority of lawyers in real estate transactions utilize E-Mail as the primary means of notification for purposes of rescinding a Contract, in spite of the requirements set forth in the settlement. He went on to say that expedience dictates such practice, and that the challenge by the prospective Purchaser’s attorney as to the mode of communication, in advocating that the specifics of the settlement procedures be adhered to for purposes of rescinding a Contract, served only to invoke "form over substance," and to no avail. He went on to say that the current rescission notice was outdated and archaic in light of current technology and served no beneficial purpose. The Court agreed. Is this the last word on the subject? Not by any means. However, it interjects common sense and practicality, all of which better serve New Jersey real estate attorneys and their Clients as it relates to real estate contracts.

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