Sperl v. Gedzelman, 30 N.Y.2d 390 (1972)
Selling participating interests in a real estate syndication (limited partnership) for investment purposes does not require a real estate broker’s license under Article 12-A of the New York Real Property Law because such interests are considered personalty (securities), not realty.
Summary
This case addresses whether a person selling interests in a real estate syndication (limited partnership) must be a licensed real estate broker. A stockholder brought a derivative action to recover commissions paid to Gedzelman, a non-licensed accountant, for securing investors in a real estate limited partnership. The court held that selling interests in a real estate syndication constitutes selling personalty (securities) and is governed by the Martin Act, not the Real Property Law. Therefore, Gedzelman was not required to have a real estate broker’s license to receive the commission.
Facts
Greenberg contracted to purchase the Root Building in Buffalo and sought to syndicate it. He retained Continental Realty Servicing Corp., a licensed real estate broker, to find investors for a limited partnership.
Continental was a closed corporation with three equal stockholders, including the plaintiff and Greenberg.
The total amount to be raised for the limited partnership was $215,000, with $14,000 designated for Continental’s services and expenses.
Continental obtained the required investors, and the limited partnership, “Root Building Associates,” was formed.
Continental paid Gedzelman, a certified public accountant, $3,250 for obtaining investors who contributed $65,000 to the partnership.
Procedural History
The plaintiff, a stockholder of Continental, sued to recover the $3,250 paid to Gedzelman, arguing it was an improperly paid real estate broker’s commission.
The trial court ruled in favor of the plaintiff, finding that Gedzelman secured customers to purchase an interest in real estate.
The Appellate Division affirmed. The New York Court of Appeals reversed the lower courts’ decisions.
Issue(s)
Whether a person selling participating interests in a syndication (a limited partnership) formed to acquire real property for investment purposes is required to be a licensed real estate broker under Article 12-A of the Real Property Law.
Holding
No, because an interest in a limited partnership, even one dealing in real estate, is considered personalty (a security), not realty; therefore, selling such interests does not fall under the purview of Article 12-A of the Real Property Law.
Court’s Reasoning
The court distinguished between organizing a limited partnership by obtaining investors and the partnership’s subsequent acquisition of real property.
The payment to Gedzelman related to the former, procuring investors.
The court emphasized that an interest in a limited partnership is personalty, conferring no direct title to the partnership’s real property. Instead, investors acquire a share of the partnership’s profits and surplus, which is personal property.
The court stated: “An interest in a limited partnership — even a partnership that deals solely in real estate-—-is personalty, not realty (Partnership Law, § 107).”
The court reasoned that Article 12-A of the Real Property Law is penal in nature and should be strictly construed, clarifying that it does not encompass every transaction involving an interest in real estate.
The court stated that the statute’s provisions are not broad enough “to cover * * * every transaction in which an interest in real estate may be part of the subject of transfer”.
The court highlighted the legislative distinction between selling an