ASSEMBLY, No. 2438
STATE OF NEW JERSEY
INTRODUCED OCTOBER 21, 1996
By Assemblyman DiGAETANO
An Act concerning real estate brokerage practices and supplementing Title 45 of the Revised Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. This act shall be known and may be cited as the "Commercial Real Estate Anti-Kickback and Full Disclosure Act."
2. The Legislature finds and declares that:
a. Several factors have constrained New Jersey's economic growth, including an underutilization, long-term underinvestment and de-industrialization of the State's commercial real estate market;
b. Commercial real estate is a major industry in New Jersey which has continued to deteriorate due to the downturn in the State's economy and inflationary pressures, causing burgeoning expenses and costs associated with commercial real estate transactions;
c. Although the State has targeted efforts towards revitalization of the State's economy, the realization of this goal has been hindered by the antiquated practices and abuses in the commercial real estate industry, inviting a need to redefine the relationship between property owners, real estate brokers and tenants;
d. New Jersey's commercial real estate industry has been unable to meet the requirements of New Jersey's growing dynamic economy and the State has been placed at a disadvantage in comparison to other states because commercial real estate commissions in New Jersey are among the highest in the nation, despite the State's having one of the highest commercial real estate volumes;
e. Most commercial real estate transactions involve large sums of money, with contracts containing complex contingencies and numerous options. Frequently, the parties in these transactions are unable to negotiate fair and reasonable agreements due to a lack of understanding of the nature and terms of the brokerage arrangement;
f. Commercial real estate brokerage commission practices create an undue burden on property owners and increase rent for tenants so that New Jersey commercial real estate is not competitive with similar real estate in New York and Pennsylvania;
g. The potential for conflicts-of-interest in commercial real estate transactions is too significant to permit even consensual dual representation of a tenant and owner, except in very limited circumstances;
h. As a matter of business ethics and public policy, and in order to avoid abuses, there is a need for complete disclosure by all parties in a commercial real estate transaction as to the nature of the parties' relationships and their respective compensation arrangements because these are inexorably linked to the economics of the transaction itself;
i. Disclosure in the commercial real estate market is consistent with developments in the residential real estate market where consumers have been afforded certain protections through enhanced disclosure of the types of agency relationships that can occur in a residential real estate transaction;
j. Disclosure in the commercial real estate market will educate the parties to the loyalties and compensation of the brokers involved and the effect of such compensation on the cost of the commercial real estate and will ensure that they are adequately informed of the true nature of their relationship before entering into an agreement or transaction, as well as serve to foster the parties course of dealing; and
k. Understanding the nature of a broker's relationship with the party retaining that broker and creating a fiduciary obligation from the broker to that party will result in a positive economic impact on all parties involved in such complex real estate transactions.
3. As used in this act:
"Broker" means a person licensed as a real estate broker pursuant to and all persons employed by or working with that broker as licensed salespersons.
"Buyer" means a person intending to buy or acquire commercial real estate or any interest therein, including, but not limited to, an option and who executes a legally binding written agreement with a broker to represent the buyer in pursuit thereof. The term "buyer" includes an actual or prospective buyer.
"Commercial real estate" means real estate all or any part of which serves or is intended to serve as a business location for a person, whether that person owns or leases, or intends to own or lease that location, as well as any real estate that is offered or is intended to be offered for sale, exchange or lease as a business location for a person. For purposes of this act, commercial real estate also includes any part of or interest in real estate described herein, but does not include any portion of a residential dwelling that is used for business purposes by the owner or the tenant of that residential dwelling.
"Commercial real estate broker" means a broker that, for pecuniary gain or expectation of pecuniary gain:
(1) lists, or offers or attempts to list, for sale or exchange commercial real estate or an interest therein;
(2) sells, exchanges, buys or leases commercial real estate or an interest therein;
(3) negotiates, or offers or attempts to negotiate, a sale, exchange, purchase or lease of commercial real estate or an interest therein;
(4) solicits, or offers or attempts to solicit, prospective purchasers or tenants for commercial real estate or an interest therein;
(5) solicits or offers or attempts to solicit owners of commercial real estate from whom a person retaining or solicited to retain that broker may purchase, exchange or lease commercial real estate or an interest therein;
(6) assists or participates, or offers or attempts to assist or participate, in the procuring of one or more person to be a party to an actual or proposed commercial real estate transaction; or
(7) assists or participates, or offers or attempts to assist or participate in the negotiation or closing of any commercial real estate transaction.
"Commercial real estate transaction" means a sale, exchange, purchase or lease, or an option to sell, exchange, purchase or lease, or any proposed transaction involving the sale, exchange, purchase or lease, and the option to sell, exchange, purchase or lease, of commercial real estate.
"Disclosure" means, in connection with each commercial real estate transaction, a written notice from a broker to each party other than that broker describing the identity of those persons paying compensation or commissions to that broker in connection with the commercial real estate transaction and the identity of those persons to whom that broker is paying compensation or commissions in connection with that commercial real estate transaction.
"Family member" means, in the case of a natural person, a person's spouse, child, parent or sibling.
"Fiduciary" means a broker in a relationship of trust and confidence with the person retaining that broker, and exercising duties of reasonable care, undivided loyalty, confidentiality, and full disclosure to the person retaining the broker.
"Lease" means any legal right to use commercial real estate granted by an owner to another person in exchange for the payment of consideration where that right is intended to continue for more than one month. The term "lease" also means both the owner's act of granting that right, or execution of a written document granting that right, and the tenant's act of agreeing to the consideration for that right or execution or a written document agreeing to the consideration for the right.
"Owner" means any person with an interest in commercial real estate that has entered into, is entering into, intends to enter into or desires to enter into a commercial real estate transaction relating to that commercial real estate as a landlord or seller. The term "owner" also means an actual or prospective owner and includes any successor-in-interest to the owner actually entering into a commercial real estate transaction.
"Party" means an owner, tenant, buyer or broker who is a participant in a commercial real estate transaction.
"Prime rate" means the base rate on corporate loans at large United States money center commercial banks.
"Real estate" means land, property, a building or buildings, a structure or structures, or an establishment or establishments, regardless of the nature of the owner's interest in same so long as the owner has the legal right to sell, exchange or lease same.
"Tenant" means a person intending to lease commercial real estate from an owner or who executes a legally binding written document to lease commercial real estate from an owner and who executes a legally binding written agreement with a broker to represent the tenant in pursuit thereof. The term "tenant" also means an actual or prospective tenant.
4. a. (1) A broker may be retained by a tenant or buyer to locate suitable commercial real estate for that tenant or buyer or to perform related services that the tenant or buyer may desire, including, but not limited to: the preparation of demographic studies or requests for proposals; negotiation of leases or contracts for the purchase of commercial real estate; consultations on legal issues relating to the proposed commercial real estate transaction; review of leases submitted by owners desiring to enter into a commercial real estate transaction with a tenant or review of information about the commercial real estate being considered by owners desiring to enter into a commercial real estate transaction with a buyer; consultations
on space plans; and other ancillary services related to a commercial real estate transaction.
(2) Any retention of a broker by a tenant or a buyer shall be pursuant to a written agreement between the parties and shall clearly set forth the services to be provided by the broker and the commission or other compensation to be paid by the tenant or buyer for each service or, if applicable, each group of services, and the conditions to any commission or other compensation being earned, due and payable.
(3) A broker employed by a tenant or a buyer may act only for and in the best interests of that tenant or buyer and shall only receive commission or other compensation from the tenant or buyer retaining that broker and then only in the amounts clearly set forth in the written agreement of retention executed by both the broker and the tenant or buyer, and only to the extent these amounts are earned, due and payable pursuant to the retention agreement and applicable law.
(4) Other than the tenant or buyer retaining the broker, no party to any commercial real estate transaction that results in a commission or other compensation being earned, due and payable to that broker shall have any liability or responsibility for paying any commission or other compensation due to the broker under the retention agreement, and it shall be illegal for any broker, tenant, or buyer to request that another party to that commercial real estate transaction pay, directly or indirectly, all or any portion of that commission or other compensation, except to the extent and in the manner specifically permitted by this act.
(5) The broker shall be a fiduciary of the tenant or buyer retaining that broker and shall carry out all of the broker's fiduciary duties faithfully and honestly.
b. (1) A broker may be retained by an owner to locate a suitable tenant or buyer for the owner's commercial real estate, or any part thereof or to perform related services that the owner may desire, including, but not limited to; the preparation of demographic studies or requests for proposals; negotiation of leases or contracts for the sale of commercial real estate; consultations on legal issues relating to the proposed commercial real estate transaction; review of financial and other information submitted by tenants or buyers desiring to enter into a commercial real estate transaction with an owner or review of information about the tenants or buyers desiring to enter into a commercial real estate transaction with an owner or the terms of their proposals; consultations on marketing strategies; and other ancillary services related to a commercial real estate transaction.
(2) Any retention of a broker by an owner shall be pursuant to a written agreement between the parties and shall clearly set forth the services to be provided by the broker and the commission or other compensation to be paid by the owner for each service or, if applicable, each group of services, and the conditions to any commission or other compensation being earned, due and payable.
(3) A broker employed by an owner may act only for and in the best interests of that owner and shall only receive a commission or other compensation earned, due and payable from the owner retaining that broker and then only in the amounts clearly set forth in the written agreement of retention executed by both the broker and owner, and only to the extent that these amounts are earned, due and payable pursuant to the retention agreement and applicable law.
(4) Other than the owner retaining the broker, no party to any commercial real estate transaction that results in a commission or other compensation being earned, due and payable to that broker shall have any liability or responsibility for paying any commission or other compensation due to the broker under the retention agreement, and it shall be illegal for any broker or owner to request that another party to that commercial real estate transaction pay, directly or indirectly, all or any portion of that commission or other compensation.
(5) The broker shall be a fiduciary of the owner retaining that broker and shall carry out all of the broker's fiduciary duties faithfully and honestly.
c. Every retention agreement executed pursuant to this section shall specify a definite terminal date, which date shall not be subject to any qualifying terms or conditions and which shall not be more than one year after the effective date of the agreement.
5. a. No commission or other compensation with respect to a commercial real estate transaction shall be fixed by any governmental authority, trade association or multiple listing service.
b. A broker shall not be prohibited from independently establishing a policy regarding the amount of commission or other compensation to be charged in a commercial real estate transaction by the broker.
c. Any commission or other compensation on rental properties shall be based upon the actual rent to be paid under the lease and not on other amounts incorporated in the rent, including, but not limited to, taxes and utilities.
d. A broker acting as a commercial real estate broker shall be entitled to a commission or other compensation as is set forth in that broker's retention agreement upon the satisfaction of the conditions to the earning and payment of that commission or other compensation set forth in the agreement, except that no retention agreement may provide for any of the following:
(1) The payment of any commission to a broker in connection with a commercial real estate transaction if that broker has not been retained by a party to the commercial real estate transaction in connection with that commercial real estate transaction and has not been actively involved in the commercial real estate transaction for which the commission is to be paid.
(2) The payment of any compensation other than a commission to a broker for services related to an actual or proposed commercial real estate transaction or related to commercial real estate transactions in general, if that broker's retention agreement does not clearly set forth the compensation other than commission to be paid and the terms and conditions to its being earned, due and payable.
(3) The payment of any commission or other compensation to the broker in connection with any commercial real estate transaction or transactions not clearly contemplated by the retention agreement, or clearly contemplated by the retention agreement but consummated after a date certain set forth in the retention agreement, which date shall not be more than one year after the date that the retention agreement is executed by the person agreeing to retain that broker, except that it shall be permissible for an owner or tenant to agree in a retention agreement that if a lease of commercial real estate entered into during the actual retention period is renewed by a tenant in accordance with an express option to renew provided in a written lease of commercial real estate on which the broker was paid a commission by the retaining party, the broker may also be paid a commission by the retaining party upon the exercise of such express renewal option by the tenant to the extent and only to the extent that:
(a) the option is required to be irrevocably exercised and is in fact irrevocably exercised within the time period, whichever is less, of the initial term of the lease, or the initial 10 year period of the lease;
(b) the retaining party has not retained another broker to assist that party in connection with the renewal option; and
(c) no commission or other compensation is payable in connection with any portion of any such renewal option extending the lease past the time period, whichever is less, of: the initial term of the lease plus the first renewal option; the initial term of the lease plus five years; or 15 years after the commencement of the initial term of the lease.
(4) The payment of any commission or other compensation to the extent that commission or other compensation is based upon the rents to be paid under the lease and not on an hourly rate, fixed task rate or other rate not based on the rents to be paid under the lease, before the rents upon which the commission or other compensation is based are paid from the tenant to the owner, except that if both the broker and the party retaining the broker agree, a retention agreement may provide for an accelerated payment of the commission or other compensation based upon the rents to be paid if:
(a) These rents are discounted to the present value of the stream of rents over the time period they are to be paid at the then current prime rate, and
(b) The broker agrees, in the retention agreement providing for an accelerated payment, that if the lease is terminated before its expiration date, as a result of any cause, including the default of any party affecting the economic value of the commercial real estate, a casualty, condemnation or other cause, any unearned portion of the commission or other compensation shall be repaid by the broker to the party paying the commission or other compensation to the broker except to the extent that the party paying the commission or compensation to the broker caused the termination of the lease by its default. No party shall be deemed to have caused the termination of a lease by its default for purposes of this section as a result of a casualty or similar event even if caused by the negligence or gross negligence of that party.
6. Any broker acting as a commercial real estate broker for any party to a commercial real estate transaction shall disclose in writing to all parties to that commercial real estate transaction, before any binding agreement related to the commercial real estate transaction is entered into by any party, in a disclosure, the form and substance of which shall be written in a simple, clear, understandable and easily readable way, all financial arrangements between the broker and any other person or persons with respect to commissions or other compensation payable to the broker by the party retaining that broker, including, but not limited to, any commission or other compensation to be paid by the broker to any other broker or other person who is not a broker in connection with the commercial real estate transaction. Nothing in this section shall require a broker to disclose the particulars of the sharing of a commission or other compensation between or among the broker and any other brokers or salespersons retained or employed by that broker.
7. If a commercial real estate transaction is a lease renewal, extension of the term of a lease or agreement for additional space in connection with a lease, whether set forth as an amendment, modification or otherwise, except in the situation described in paragraph (4) of subsection d. of section 5 of this act and otherwise satisfying all conditions of this act, a broker shall only be entitled to a commission or other compensation from the party retaining that broker if:
a. The broker is retained by the retaining party expressly for the negotiation of that lease renewal, extension of the term of the lease or agreement for additional space in connection with the lease, whether denominated as an amendment, modification or otherwise, and the other party is informed of that retention in writing by the retaining party or the retained broker no less than 30 days before negotiations commence and no more than 10 days after negotiations commence; and
b. The broker is substantially involved in the negotiations on behalf of the retaining party.
8. A broker no longer actively engaged in a commercial real estate brokerage business shall not be entitled to the payment of any commission or other compensation that is not earned, due and payable before the broker ceases to be actively engaged in the commercial real estate brokerage business, except that nothing shall prevent a broker no longer actively engaged in a commercial real estate brokerage business from being entitled to a payment of a commission paid as rent under the lease in connection with which that broker was retained if the commission is not fully earned, due and payable solely as a result of the fact that all rents on which that commission is to be earned, due and payable have not yet become due to the owner from the tenant, but receipt of that commission shall not extend beyond the payment of a commission to include any renewal, expansion or other term not unconditionally binding on both owner and tenant at the time of the execution of the lease for which the broker was retained.
9. Nothing in this act shall be construed to apply to residential real estate transactions.
10. a. No person shall engage either directly or indirectly in the business of a broker in connection with an actual or prospective commercial real estate transaction, and no person shall advertise or represent himself as being authorized to act as a broker in connection with an actual or prospective commercial real estate transaction, without having entered into a retention agreement with an owner, tenant or buyer in connection with that commercial real estate transaction and without disclosing whether the broker represents an owner, tenant or buyer in connection with the transaction.
b. If, a broker fails to apprise a person retaining that broker, before the retention occurs, that any other actual or prospective party to a proposed transaction is a person with whom that broker, any family member of that broker or any entity in which that broker or any family member has a direct or indirect interest, had or has a business or personal relationship, and where the full disclosure of the actual circumstances would reasonably be expected to generate fair suspicion in a reasonable person as to whether the broker would exercise his very best efforts on behalf of the retaining party due to that business or personal relationship, the broker shall not be entitled to any commission or other compensation whatsoever in connection with that retention and shall promptly repay to the retaining party any commission or other compensation previously paid to the broker in connection with the retention, with interest at the prime rate from the date of payment to the date of repayment, and that nondisclosure shall constitute an absolute defense in an action for any commission or other compensation, whether or not the person retaining the broker was in fact prejudiced by the nondisclosure.
11. Notwithstanding any other provision of this act, a broker may be permitted to represent both an owner and tenant or an owner and buyer in a commercial real estate transaction only when the following conditions are satisfied:
a. The broker has, for a period of at least 30 days before the tenant or buyer first expresses an interest in entering into the commercial real estate transaction, been the exclusive leasing or sales agent, as the case may be, for the commercial real estate involved in the commercial real estate transaction pursuant to a retention agreement between the owner and broker.
b. The tenant or buyer receives full disclosure of the broker's representation of the owner and the commission or other compensation to be paid to the broker by the owner before retaining that broker in connection with the commercial real estate transaction and consents in writing to the dual representation.
c. The owner receives full disclosure of the broker's representation of the tenant or buyer and the commission or other compensation to be paid to the broker by the tenant or buyer before the tenant's or buyer's general interest in entering into a commercial real estate transaction with the owner is revealed and consents in writing to the dual representation.
d. The broker agrees in writing with both the owner and tenant or buyer that for purposes of calculating any commission or other compensation due to the broker as a result of the commercial real estate transaction for which the tenant or buyer has retained the broker, the broker will receive no more than the sum of the amounts to be paid by the owner and the tenant or buyer, to be limited as follows:
(1) The commission or other compensation to be paid by the owner to the broker, as due and payable in accordance with the retention agreement and the provisions of this act, shall be limited to the commission or other compensation that would be paid by the owner to the broker if the tenant or buyer had retained a third party broker to represent him in connection with the commercial real estate transaction; and
(2) The commission or other compensation to be paid by the tenant or buyer to the broker, as due in accordance with the retention agreement and the provisions of this act, shall be limited to the amount
specified under the retention agreement with the tenant or buyer before any credit for amounts paid or payable by the owner pursuant to the owner's retention agreement with the broker, less the amount to be paid to the broker by the owner in accordance with the owner's retention agreement.
e. In those circumstances satisfying all of the requirements of this section, the broker shall advise each party that, in addition to working on their behalf, the broker will also represent the other party. The broker shall also advise what effect the broker's representation will have on the fiduciary duties the broker owes to the owner and the tenant or the buyer. The broker shall be required to treat both parties to the commercial real estate transaction honestly and act in a competent manner. When working as a broker for both the owner and tenant or buyer, a broker shall also obtain the express written consent of a party prior to disclosing confidential information to the other party. This information includes the highest price a tenant or buyer can afford to pay and the lowest price an owner will accept and the parties' motivation to sell, lease or buy. A broker acting in this capacity shall not place one party's interests ahead of those of the other party and shall not advise or counsel either party on how to gain an advantage at the expense of the other party on the basis of confidential information obtained from or about the other party.
12. Upon the written request of any tenant submitted before final leases are submitted for execution, that tenant may request that the owner provide to the tenant, at the sole cost and expense of the tenant, the payment of all or a portion of a commission or other compensation to a broker retained by the tenant in connection with a commercial real estate transaction. The owner shall have discretion whether or not to agree to provide these payments.
If the owner agrees, in writing, to provide these payments, the obligation of the owner to provide the payments shall be limited as follows:
a. The lease shall specifically and separately set forth:
(1) The total amount of the commission or other compensation to be paid by the tenant to the broker and, assuming the tenant has paid all amounts due under the lease, all amounts to be paid to the broker on behalf of the tenant by the owner, including the dates and exact amounts that are to be paid to the broker on behalf of the tenant by the owner and an agreement by the tenant to pay all such amounts to the owner no less than 10 days before each payment is scheduled to come due.
(2) An agreement that the owner shall forward the payment required on any date as set forth in the lease to the broker provided:
(a) all amounts payable by the tenant to the owner pursuant to the lease, including but not limited to, rent, additional rent, other charges and amounts to be paid on behalf of the tenant to the broker, through and including that date have been paid in full and no amounts remain outstanding;
(b) all payments by the tenant to the owner have actually been received at least 10 days prior to the date on which the payment to the broker is due and payable, and are fully available to the owner without risk of reversal; and
(c) any other terms related to the broker payments, to the extent they are not inconsistent with this act, have been met.
b. A separate agreement between the owner, tenant and broker, in writing, shall set forth that:
(1) the broker has been retained by the tenant and that the tenant is solely responsible for compensating the broker;
(2) the tenant, with the broker's consent, has agreed to request the owner to handle the payment to the broker in accordance with the provisions of this act and that the owner has agreed to do so;
(3) the owner agrees to pay to the broker the amounts set forth in the lease as being payable to the broker on the dates these amounts are payable, provided that all conditions to that payment set forth in the applicable retention agreement and this act have been satisfied;
(4) the tenant shall be responsible to the broker for each payment due to the broker until such time as the owner has received such payment and all other conditions to the payment from the owner to the broker are satisfied, at which point only the owner shall be responsible for the payment; and
(5) any other terms, not inconsistent with the terms of this act, as the parties shall desire.
13. This is a remedial act and the protections provided herein are not waivable by any party to a commercial real estate transaction. Any waiver or purported waiver shall be null and void and any broker requesting a waiver of the provisions of this act from any party shall be in violation of this act and subject to discipline as set forth in this act or in any other laws governing the conduct of brokers.
14. A broker engaging in a commercial real estate transaction violates this act if the broker:
a. Makes any false promises or any substantial misrepresentation;
b. Acts for more than one party in a transaction without the knowledge of all parties thereto or in any way not permitted by this act;
c. Fails to disclose any of the information required under this act;
d. Pursues a flagrant and continued course of misrepresentation or making of false promises through agents, advertisements or otherwise;
e. Fails to account for or to pay over any moneys belonging to others, coming into the possession of the broker;
f. Acts in a manner which demonstrates unworthiness, incompetency, bad faith or dishonesty, including, but not limited to, requesting any person to waive any of the rights, protections or remedies provided to that person under this act;
g. Fails to provide the broker's client with a fully executed copy of a retention agreement at the time of its execution, or fails to specify in the agreement a definite terminal date, as provided in section 4 of this act;
h. Uses any plan, scheme or method for the sale or promotion of the sale of commercial real estate which involves a lottery, a contest, a game, a prize, a drawing, or the offering of a lot or parcel for advertising purposes;
i. Is convicted of a crime, knowledge of which the New Jersey Real Estate Commission did not have at the time of last issuing a real estate license to the broker;
j. Except as expressly permitted by this act, collects or attempts to collect a commission or other compensation as a broker in a transaction, when at the same time representing another party in that transaction in a different capacity for a consideration;
k. Uses any trade name or insignia of membership in any real estate organization of which the broker is not a member;
l. Pays any rebate, profit, compensation or commission to anyone not possessed of a valid New Jersey real estate broker or salesperson license;
m. Any other conduct, whether of the same or a different character than specified in this section, which constitutes fraud or dishonest dealing;
n. Accepts a commission or valuable consideration as a broker for the performance of any of the acts specified in this act, from any person, except his employing broker;
o. Procures a real estate broker or salesperson license, for himself or anyone else, by fraud, misrepresentation or deceit; or
p. Commingles the money or other property of the broker's principals with his own or fails to maintain and deposit in a special account, separate and apart from personal or other business accounts, all moneys received by a real estate broker, acting in that capacity, or as escrow agent, or the temporary custodian of the funds of others, in a real estate transaction;
q. Engages or attempts to engage in a commercial real estate transaction involving commercial real estate in the ownership of which the broker is interested in any manner whatsoever, unless the broker first discloses to the other parties to the commercial real estate transaction the broker's interest therein and the broker's status as a real estate broker;
r. Engages or attempts to engage in a commercial real estate transaction in which the broker desires to or will acquire an interest of any nature whatsoever in the commercial real estate unless the broker first discloses to the other parties to the commercial real estate transaction the broker's status as a real estate broker;
s. Fails to notify the New Jersey Real Estate Commission within 30 days of having been convicted or any crime, misdemeanor or disorderly persons offense, or of having been indicted, or of the filing of any formal criminal charges, or of the suspension or revocation of any real estate license issued by another state, or of the initiation of formal disciplinary proceedings in another state, or of the initiation of formal disciplinary proceedings in another state affecting any real estate license held, or failing to supply any documentation available to the broker that the New Jersey Real Estate Commission may request in connection with such matter; or
t. Violates any of the provisions of this act or of the administrative rules adopted by the New Jersey Real Estate Commission.
15. Any person or party damaged as the result of a violation of any provision of this act may sue therefor in any court of competent jurisdiction to recover compensatory damages, which may include costs of suit and attorney fees. If a broker is found by a court of competent jurisdiction to have violated any provision of this act, the broker shall be subject to a civil penalty not to exceed $5,000 for the first violation, and a penalty of not more than $10,000 for any subsequent violation. Each offense shall be construed as a separate violation.
16. Nothing in this act shall prevent a person from negotiating or entering into a written retention agreement with any broker in connection with a commercial real estate transaction which contains duties, obligations or responsibilities which are in addition to, but not inconsistent with, those specified in this act.
17. This act shall take effect immediately.
STATEMENT
The State's commercial real estate market has been plagued by a lagging economy and an overall underutilization of commercial space, intensified by antiquated practices and abuses in the commercial real estate industry. These practices have placed New Jersey at a competitive disadvantage with other states, not only on a regional, but a national basis as well, demonstrating a need to redefine the relationship between the parties in commercial real estate transactions.
This bill, the "Commercial Real Estate Anti-Kickback and Full Disclosure Act," codifies certain prevailing commercial real estate practices by requiring disclosure of the nature and terms of the brokerage relationship. Such disclosure is consistent with developments in the residential real estate market where consumers have been provided enhanced disclosure of the types of agency relationships that could occur in a residential real estate transaction. Commercial real estate transactions frequently involve large sums of money, with contracts containing complex contingencies and numerous options, illustrating a need to educate the parties to ensure that they are adequately informed of the true nature of their relationship before entering into a brokerage agreement.
Under the bill, a broker is permitted to be retained by a tenant or buyer to locate commercial real estate or such other related services pursuant to the terms of a written retention agreement setting forth the amount of commission or other compensation to be paid to the broker. Once the agreement is executed, the broker, as a fiduciary of the tenant or buyer, is obligated to act in the best interests of the tenant or buyer. A broker is also permitted to be retained by an owner to locate a tenant or buyer or perform related services under a written retention agreement creating the same fiduciary obligations of a broker retained by a tenant or buyer.
The bill prohibits the fixing of any commission or other compensation for a commercial real estate transaction by any governmental authority, trade association or multiple listing service. Also, a broker is not entitled to any commission or other compensation the broker has not earned while actively engaged in the commercial real estate brokerage business.
The bill's provisions also govern lease renewals, extensions of the term of a lease or agreements for additional space in connection with a lease. It contains additional requirements which must be met before a broker will be entitled to a commission in such situations, including a requirement that the retention agreement must be executed not more than 30 days before and 20 days after negotiations commence and the broker is substantially involved in the negotiations on behalf of the retaining party.
The bill allows a broker to represent both an owner and tenant or an owner and buyer in a commercial real estate transaction when the broker has been the exclusive leasing or sales agent under a retention agreement for at least 30 days before the expression of interest by the tenant or buyer; the broker's representation, including commission or other compensation, has been fully disclosed to the parties and the parties give their written consent to the broker's dual representation; and the broker agrees that his or her commission could be limited.
Under the bill, the tenant has the right to request that the owner pay the broker's commission at the expense of the tenant. Finally, the bill sets forth what conduct constitutes violations of its provisions and allows a person to institute a civil action seeking damages, costs and attorneys fees.
"Commercial Real Estate Anti-Kickback and Full Disclosure Act."