Expands Realtors’ Disclosure Liability and Invalidates Exculpatory Clause In Standard Form Purchase and Sale Agreement
Unfortunately I have some bad news for Massachusetts real estate agents, as the Supreme Judicial Court recently ruled against a Realtor for failing to properly verify a representation made on MLS concerning a listing’s zoning classification. The closely watched case is DeWolfe v. Hingham Centre Ltd. (SJC-11168) (embedded below).
Zoned For Business or Residential?
The lawsuit was brought by a buyer of a hair salon business who relied upon what turned out to be erroneous information supplied by the listing agent (through information provided by the seller). The broker represented on the Multiple Listing Service (MLS) and newspaper advertising that the property was zoning “Business B,” which allowed a hair salon. Further, the broker placed at the property copies of pages from the town’s zoning by-law that listed hair salons as “Permitted Business Uses” in the Business B District. The property was not, in fact, zoned for business use; it was zoned residential, thereby prohibiting the hair salon the buyer wanted to open at the property. The buyer sued for misrepresentation and violations of the Consumer Protection Act, Chapter 93A.
Ruling: Realtors Have Duty to Exercise “Reasonable Care” In Making Zoning Representations
In an unanimous opinion by Justice Barbara Lenk, the SJC stated that while a real estate broker may ordinarily rely upon information provided by his client, where such reliance is unreasonable in the circumstances, an agent has a duty to independently investigate the information before conveying it to a prospective buyer.
The court ultimately held that all Massachusetts real estate agents have a duty to exercise reasonable care in making representations as to a property’s zoning designation.
Here, the owner testified that he told the real estate broker that the property was zoned “Residential Business B.” The experienced broker apparently knew that there was no such zoning district in Norwell, and instead advertised the property as zoned “Business B.” In addition, the broker was aware of no prior business use of the property, and had observed houses – not businesses – adjoining the property on either side. Based on these facts, the SJC concluded that a jury could find that the broker was on notice that the information provided by the owner was unreliable, and acted unreasonably in representing the property as zoned “Business B” without conducting any further investigation.
Exculpatory Clause in Standard Form P&S Not Applicable
The SJC also rejected the broker’s argument that the exculpatory clause in the standard form purchase and sale agreement barred the buyer’s claims. The familiar contract language provides:
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.
The justices held that, under the confusing, double-negative language quoted above, a buyer can rely on prior written representations that are not set forth or incorporated in the agreement. Therefore, the agreement did not protect the broker from liability arising from the written misrepresentations in the newspaper ad, the MLS listing, and the inapplicable zoning by-law placed at the property.
The SJC has sent the case back to the trial court for a possible jury trial or, most likely, towards settlement. And hopefully the Greater Boston Real Estate Board is re-drafting its poorly worded exculpatory clause.
Advice For Realtors Going Forward
- Do NOT say or write anything on MLS or anywhere else concerning a property’s zoning status. Make the buyer conduct his/her own independent research.
- If your MLS requires input of zoning status, put the zoning with the following disclaimer: *subject to buyer verification
- Never trust your client when it comes to information concerning the property. I hate to say this, but when it comes to disclosures, it’s true.
- Always independently verify information about the property from available public sources. Here, the agent could have simply gone down to the town planning office to verify whether the property was zoned commercial or residential.
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Richard D. Vetstein, Esq. is a Massachusetts attorney with substantial experience in real estate disclosure litigation brought by buyers against Realtors. Please contact him at [email protected] or 508-620-5352.
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