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SJC Decision about Zoning Disclosure Lawsuit Leaves Broker Liability Question up to Lower Court

Under the DeWolfe v. Hingham Ctr., Ltd, case, the Massachusetts Supreme Judicial Court has considered the disclosure obligations for a real estate professional when the owner provides inaccurate information about the property’s zoning classification.

In 2004, Paul and Lauren Tribuna (“Sellers”) listed their home for sale with M. Eileen Richards (“Broker”) of Hingham Centre, Ltd. (“Brokerage”). One of the sellers told the Broker either that the property was zoned “Residential Business B” (a nonexistent zoning category) or “Business B”. The Broker advertised the property as Business B, even though there were only residences on the same side of the street as the Sellers’ property.

Daniel DeWolfe (“Buyer’) is a professional hairdresser who was interested in opening a hair salon. He saw the Broker’s advertisements and so came to see the property. During his visit, he saw a copy of the town’s “Business B” housing ordinance that the Broker had made available, and “hairdresser” was listed as a permissible use of a property zoned Business B.

The Buyer made an offer for the property, and the Sellers accepted the offer. The purchase agreement contained the following provision entitled “Warranties and Representations”:

“The BUYER acknowledges that the BUYER has not been influenced to enter into this transaction nor has he relied upon any warranties or representations not set forth or incorporated in this agreement or previously made in writing, except for the following additional warranties and representations, if any, made by either the SELLER or the Broker(s): NONE.”

Following the closing, the Buyer learned that the property was zoned Residential B and that operating a hair salon on the property was not permitted.

The Buyer filed a lawsuit against the Broker and the Brokerage, alleging misrepresentation. The trial court ruled in favor of the Broker and the Brokerage, and the Buyer appealed. An appellate court vacated the lower court decision, and the Broker and the Brokerage appealed that ruling.

The Massachusetts Supreme Judicial Court affirmed the appellate court, reversing the judgment in favor of the Broker and Brokerage and sending the case back to the lower court for further proceedings. The court considered the Broker’s arguments that she had no duty to confirm the status of the property’s zoning and that the Warranties and Representation language in the purchase agreement further protected the Broker and Brokerage from any liability.

The court determined that real estate professionals can be liable for negligent misrepresentation if they fail to exercise reasonable care in making representations to clients. While a real estate professional can usually rely upon the information that he/she receives from his/her client, this does not insulate the real estate professional from claims; instead, the question is whether the real estate professional exercised reasonable care in making the statements in question. If it is unreasonable for the broker to rely upon information provided by the seller, then the broker has a duty to further investigate this information. A jury could determine that it was unreasonable for the Broker to rely upon the zoning information received from the Sellers, as the Broker did not observe any business usage on the property nor were any of the neighboring properties operating as businesses. Therefore, the court agreed with the appellate court and vacated the judgment in favor the Broker and Brokerage.

Next, the court considered whether the Warranties and Representations language found in the purchase agreement protected the Broker and Brokerage from liability. The Broker read the language as providing that the Buyer did not rely on any warranties or representations when entering into the agreement, since none were listed in the paragraph. Meanwhile, the Buyer read the clause as providing that he could only rely on representations contained in the agreement, made in writing, or expressly provided at the end of the agreement, meaning that he could rely upon the advertisements prepared by the Broker.

The court ruled that the Buyer’s construction of the clause was the most plausible, determining that “not” applies to both of the phrases following it because the phrases are linked by the conjunction “or.” Based on that construction, the Buyer could have relied upon the written representations made by the Broker in the advertisements for the property. Therefore, the case was returned to the lower court for further proceedings.

Currently, the Greater Boston Real Estate Board is reviewing the warranties and representation language in the purchase and sale agreement to clarify its meaning based on this recent decision. Should any changes to the purchase and sale agreement be made, we will inform you through the GBREB/GBAR website, The Informer and a Legal Alert to the Broker Owners and Designated REALTORS®.

DeWolfe v. Hingham Ctr., Ltd., 985 N.E.2d 1187 (Mass. 2013).

 

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