The Supreme Judicial Court’s (SJC) recent ruling in DeWolfe v. Hingham Centre, Ltd., is a warning to Massachusetts real estate brokers: What you say can and will be used against you in a court of law. The case is also a lesson to brokers not to rely on language in the parties’ Purchase and Sale Agreement appearing to contain an acknowledgment that the buyer has not relied on any representations by the seller or the broker.
In this case, a real estate broker employed by Hingham Centre represented to DeWolfe, a hairdresser looking for a new location for his salon, that the Norwell property at issue was zoned “Business B.” The sellers had previously informed the broker that the property was zoned either “Residential Business B” or “Business B.” As it turns out, “Residential Business B” is not a zoning designation in Norwell. Notwithstanding the fact that the broker was not aware of any prior business use of the property, and that the abutting properties on either side were residential, the broker advertised the property in at least two newspapers as being zoned “Business B.” In addition, the broker stated that the property was “zoned Business B” in the MLS listing. The broker also provided to prospective buyers a copy of the relevant section of the Norwell Zoning Bylaw listing the permissible uses in the “Business B” zone, a list which included “personal services shops of a … hairdresser.”
DeWolfe made an offer to purchase the property, and in October 2004, he and the seller executed a standard form Purchase and Sale Agreement from the Greater Boston Real Estate Board containing the following warranties and representations clause:
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.
Shortly after the closing, DeWolfe learned that the property was zoned “Residential B” rather than “Business B,” and that the hair salon he planned to open was not a permitted use of the property. Not surprisingly, DeWolfe filed suit against the broker and her agency alleging misrepresentation and violation of Massachusetts General Laws, chapter 93A.
The Court began its analysis noting that a broker, “like any person engaged in the course of his business, may be liable for failing to exercise reasonable care in making representations to prospective buyers.” Furthermore, a broker is not insulated from liability merely by relying on information provided by the seller. A broker can rely upon information provided by the seller when it is “reasonable” to do so. Similarly, when it is unreasonable under the circumstances for a broker to rely upon information provided by the seller, the broker has a duty to investigate further before conveying such information to prospective buyers. This is where the broker and Hingham Centre ran afoul in the eyes of the SJC. The Court held that a jury could find that the broker failed to exercise reasonable care in making representations as to the zoning status of the property, and that she acted unreasonably in representing the property as zoned “Business B” without first conducting a further investigation. As a result, the case was remanded to the Superior Court to determine whether the broker exercised reasonable care.
Turning to the warranties and representations clause, the Court held that the language quoted above permits a buyer to rely upon written representations made by the seller or broker that are not set forth or incorporated in the agreement itself. Giving meaning to all of the words in the clause, the SJC held that the “or previously made in writing” language precluded an interpretation that permits the buyer to rely only on warranties and representations actually “set forth or incorporated in this agreement.”
This is an important case for real estate brokers and their employers (not to mention their liability insurers). A broker who relies on seemingly exculpatory language in a Purchase and Sale Agreement to avoid liability for factual errors in listing materials does so at his or her peril. Ultimately, the court and a jury will be looking to whether the broker’s oversight was “reasonable” or not. That is a battle a broker is well advised to avoid.
For more information on this case or questions on how brokers may or may not be held liable in real estate transactions, please contact David McCay, an experienced Massachusetts real estate litigator at Mirick O’Connell at (508) 791-8500.