by: Peter J. Gallagher (@pjsgallagher) (LinkedIn)
Anyone who has bought or sold real estate in New Jersey is familiar with "attorney review." When you buy or sell a house, you sign a contract that is almost always prepared by a broker. The contract must contain a standard provision stating that the buyer and seller have the right to have an attorney review the contract. This "attorney review" period lasts three days. The contract becomes legally binding if, at the end of that three-day period, neither the buyer's nor the seller's attorney disapproves of the contract. If either side disapproves, their attorney must notify the other side's broker by certified mail, telegram, or personal service. In Conley v. Guerrero, a case that seems to be a case study in the concept of raising form over substance, the New Jersey Supreme Court updated this requirement to allow the notice of disapproval to also be sent by fax or email. (Those of you still using telegrams may be out of luck, however, because this no longer appears to be an appropriate method of service for the notice of disapproval.)
In Conley, plaintiffs signed a form contract to purchase a condominium unit from sellers. It contained the standard "attorney review" provision. After signing the contract, but during the attorney review period, sellers received competing offers to purchase the property and eventually entered into a new contract to sell it to a new buyer for a higher price. Sellers' attorney sent a disapproval of plaintiffs' contract to both plaintiffs' counsel and the broker (who was a duel agent represented both plaintiffs and seller) during the attorney-review period. He sent the notice via email, which plaintiffs' counsel and the agent acknowledged receiving within the attorney review period. Nonetheless, plaintiffs claimed that the sellers were bound by the contract and had to sell to his clients because the disapproval was not sent in the proscribed manner — by certified mail, telegram, or hand delivery.
Plaintiffs sued, seeking specific performance. Both sides moved for summary judgment. The Chancery Division granted defendants' motion and dismissed the complaint. The Chancery Division held that, while seller did not comply with the method-of-delivery requirements set forth in the contract, this breach was only "minor" because plaintiffs' counsel acknowledged receiving the notice within the attorney review period. Therefore, the Chancery Division held that the "underlying justification for the attorney review clause" — to protect parties against being bound by broker-prepared contracts without the opportunity to review them with their attorneys — was accomplished.
Plaintiffs appealed, arguing that sellers should be required to strictly adhere to the methods of delivery set forth in the contract. Sellers argued that the notice they provided substantially complied with the contract and that actual notice was accomplished. The Appellate Division sided with sellers and affirmed the Chancery Division's decision. It held as follows: "Enforcement of the method-of-delivery provision here would result in a forfeiture of [sellers'] right to disapprove the contract. Given [sellers'] substantial compliance [with their notice requirements], that forfeiture should be avoided." Therefore, the Appellate Division affirmed the Chancery Division's decision.
Plaintiffs appealed to the New Jersey Supreme Court, which affirmed the Appellate Division and, exercising its constitutional authority over the practice of law, also held that "an attorney's notice of disapproval of a real estate contract may be transmitted by fax, email, personal delivery, or overnight mail with proof of delivery."
The Supreme Court began its decision by discussing its 1983 decision, New Jersey State Bar Association v. New Jersey Association of Realtor Boards, which created the attorney review process in the first place. That case was a dispute over whether realtors who prepared sales contracts were engaged in the unauthorized practice of law. The lawsuit was settled by the parties and the Court entered a consent judgement memorializing the terms of the settlement, including the establishment of both the three-day, attorney-review period and the method-of-delivery provision for any notice of disapproval. (Both were also later memorialized in a statute.) The Court also noted that it might, in the future, need to revisit and revise these provisions.
In Conley, the Court noted that it approved the settlement in the Bar Association case because, "most importantly, it served to protect the public interest by making [a real estate] contract subject to prompt attorney review if either buyer or seller so desire[d]." The Court further noted that, in the intervening years, when the Appellate Division was faced with questions related to attorney review, it consistently "honored effectuating" this consumer protection purpose of the attorney-review requirement "above all else." The Court further noted that the "purpose-focused reasoning applied in these decisions [comported] with well-settled principles of contract law."
With this in mind, the Court held as follows:
[S]trict enforcement of the notification provision here would result in the significant forfeiture of Seller's right to review the contract with counsel and disapprove it within the attorney-review period. Such a consequence would undermine the purpose of the attorney-review clause. Thus, this case presents precisely the type of circumstance where strict enforcement is not called for in order to fulfill the consumer-oriented purpose of the notice-of-disapproval obligation.
Holding otherwise, the Court concluded, would "elevate form over the protective purpose for which the attorney-review provision was adopted."
Finally, the Court accepted the invitation of the New Jersey Bar Association, participating as amicus curiae, to revise the required language in real estate contracts to "recognize the advent of modern communication methods such as email and the [ ] obsolescence of telegram." The Court recognized that "notice by telegram is obsolete," and that "fax and email have become the predominant, customary methods by which professionals in the industry communicate." As a result, the Court revised the settlement agreement reached in the Bar Association case to require that "notice of disapproval of a real estate contract may be transmitted by fax, e-mail, personal delivery, or overnight mail with proof of delivery." The Court also commended the matter to the Real Estate Commission to consider amending the statute in which the old requirement was memorialized.
Pete's Take 
Knowing the rules and laws of every state when it comes to real estate is very important. It will keep you protected from any troubles that will come your way. Just like this process in New Jersey. You need to know the do’s and don’ts.
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