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Canceling Contracts Through Email: N.J. Supreme Court Recognizes New Methods to Disapprove Residential Real Estate Contracts

In a ruling that acknowledges modern modes of communication, the New Jersey Supreme Court has found that a notice of disapproval of a standard form real estate contract may be transmitted by email, fax, personal service or overnight mail with proof of delivery. This is a change from the prior 34-year-old requirement that a notice of disapproval must be sent to the real estate agent or broker by certified mail, telegram or personal service. The Court in Michael Conley, Jr. vs. Mona Guerrero, 2017 N.J. Lexis 371 (2017), amended the settlement agreement made between the New Jersey Bar Association and New Jersey Association of Realtor Boards in the case that originally established the three-day attorney review clause for standard form real estate contracts to allow notice of disapproval by email, fax, personal service, or overnight mail. New Jersey State Bar Ass’n v. New Jersey Ass’n of Realtor Boards (Bar Ass’n), 93 N.J. 470, modified, 94 N.J. 449 (1983). The three-day period in which one must send the notice remains unchanged.

The Bar Ass’n settlement agreement provided that a standard form real estate contract prepared by real estate brokers and salespersons must contain a prescribed attorney review clause. The attorney review clause provides that during the three-day attorney review period, which commences after delivery of signed contracts, an attorney may disapprove the contract by notifying the other party and the other’s party real estate agent or broker. If no such disapproval is sent, then the contract becomes enforceable after the three-day period. Until now, the attorney review clause specifically dictated that a notice of disapproval must be transmitted to the real estate agent or broker by certified mail, telegram, or personal service.

The Conley case involved a real estate contract signed by the parties where before the three-day attorney review period expired, the Seller’s attorney emailed and faxed a notice of disapproval to the Buyers’ attorney and the realtor. This method of transmitting the notice of disapproval did not follow the methods required under the Bar Ass’n settlement or by the terms of the contract. The Buyers sued for specific performance arguing that the contract was enforceable because the Seller’s notice of disapproval was sent improperly. The Court found that because Buyers received actual notice of disapproval within the three-day attorney review period, by means commonly used in the industry, the notice of disapproval was valid.

The Court based its ruling on the finding that the intention of the attorney review clause was to protect consumers’ rights and a strict enforcement of the notification provision would result in a significant forfeiture of Seller’s right to review the contract with counsel and disapprove it. Moreover, the Court further found that telegrams are no longer used and that faxes and email have become the “predominant, customary methods by which professionals in the industry communicate.” As such, the Court found it necessary to amend the Bar Ass’n settlement to “acknowledge customary procedure in the profession and to recognize advances in technology.”

With this ruling, attorneys in New Jersey should expect that residential real estate contracts will be now negotiated in a more efficient and effective manner and consumers, specifically buyers and sellers of homes, should now expect that their contracts will be finalized faster.

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