By Robert S. Kutner, Esq. Partner, Casner & Edwards
In a long awaited decision concerning a broker’s misrepresentation of the zoning classification of a listed property, DeWolfe v. Hingham Centre, Ltd., the Massachusetts Supreme Judicial Court (SJC) ruled that a broker is not to be held strictly liable for a misrepresentation where the broker passed along incorrect zoning information that the listing broker received from the seller. According to the SJC, there
will be liability when it is proven that the broker failed to exercise “reasonable care” when providing the information. The decision is of widespread significance to the real estate industry, because the case sets a precedent that applies to all information passed along by a broker in reliance on the seller, ranging from whether the basement is dry, termites are present, or whether a condominium is planning to do work that will require a special assessment.
In May, 2012 the DeWolfe decision of the Appeals Court (one level below the SJC) had
been the subject of my Bay State REALTOR® article. In DeWolfe, the lawsuit arose from the purchase of a property in Hingham that had been advertised as being “zoned Business B.” On a visit to the property the prospective buyer, Daniel DeWolfe, told the broker that he wanted to relocate his hair salon to the property. The MLS listing also identified the zoning as “Business B.” The Appeals Court noted that the broker had provided the buyer with a copy of the Norwell Zoning Ordinance that provided that “hairdresser” was among the permitted uses in a Business B zone.
After obtaining approval for a six-station hair salon from the Board of Health (but not from the Building Department), DeWolfe purchased the property. In 2005 he learned that the zoning was “Residential B” and that a hair salon was not permitted. DeWolfe sued, claiming misrepresentation and violation of Chapter 93A, the Consumer Protection Act.
The superior court trial judge dismissed the case on a motion for summary judgment,
ruling that the claim was barred by the “No Warranties And Representations” clause.
DeWolfe appealed. The Appeals Court vacated the dismissal. Some attorneys interpreted that
decision as imposing a duty on listing brokers to verify zoning. Before further proceedings were held by the superior court, the SJC accepted the case for further appellate review.
The SJC has now ruled that a broker will not automatically be held liable for passing along
incorrect zoning information (i.e. no duty to verify zoning),but will be held liable where the broker failed to exercise “reasonable care” when providing the information. In other words, where a reasonable broker would have questioned the accuracy of the seller’s information, the broker has a duty to exercise “reasonable care” before providing it. Importantly, the SJC’s decision does not impose “strict liability,” but only a duty to exercise “reasonable care.” What care is reasonable depends on the circumstances. The SJC sent the DeWolfe case back to the superior court for further proceedings, presumably a trial to determine if the broker had satisfied the “reasonable care” standard.
It is significant that the SJC did not rule that it was the duty of the broker to investigate the zoning classification for every listing. The Court cited with approval, Quinlan v. Clasby, a 2008 decision in which it was held that a real estate agent was not liable for marketing a property as a “three-family house,” despite the fact that only two of the units were lawful under zoning. The listing broker in Quinlan never reviewed records of the Inspectional Services Department of the City of Boston that showed that one of the three units violated zoning. Reversing the trial court’s decision against the broker, the Appeals Court in Quinlan ruled that the real estate broker had no duty to determine zoning compliance and could rely on information provided by the seller, that the property was a threefamily. That remains the law today.
The other primary issue in DeWolfe involved interpretation of the “No Warranties or Representations” clause. The form contained a standard Greater Boston Real Estate Board (GBREB) disclaimer of warranties provision that: “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 or representations, if any, made by either the SELLER or the Broker(s):” A space for additional warranties or representations followed but in that space appeared the word - “NONE.” The broker alleged that the clause barred all claims for misrepresentation, except if written in the P&S.