Among the most frequent claims by buyers against real estate agents are: (1) that the agent misrepresented information about the property; and (2) that the agent failed to make a disclosure, despite knowledge of facts that should have been volunteered. In a recent case decided by the Massachusetts Appeals Court, DeWolfe v. Hingham Centre, Ltd., the broker defended the buyer’s misrepresentation claims, citing a disclaimer of warranties provision in the purchase and sale agreement. Every real estate agent should become familiar with the Court’s decision regarding the application of such disclaimer clauses.

 

The Lawsuit
The lawsuit arose from the purchase of a property in Hingham, which was advertised and listed in MLS as being “zoned Business B.” The prospective buyer, Daniel DeWolfe, told the broker that he wanted to relocate his hair salon to the property. DeWolfe claimed that the broker had told him that
the property could be purchased as a two family residence and legally
converted to a hair salon based on its business zoning. 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.

With the assistance of an attorney, DeWolfe signed a P&S on the standard Greater Boston Real Estate Board (GBREB) form that made his obligation to purchase contingent on approval by the town for a hair salon. The form
contained a standard 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).” In the space for additional warranties appeared the typewritten word “NONE.”

After obtaining approval for a six-station hair salon from the Board of Health (but not from the Building Department) in November 2004, 

DeWolfe purchased the property in December. In early 2005 he learned that the property was actually in a “Residential B” district and that a hair salon was not permitted. DeWolfe sued, claiming a misrepresentation.

Initially, the superior court trial judge dismissed the case on a motion for summary judgment, ruling that the broker had no duty to verify the zoning classification. DeWolfe appealed. On appeal, the Appeals Court vacated the dismissal and sent the case back to the superior court. It reasoned that where the broker had made affirmative written representations that the property was zoned Business B, the broker had a duty to verify the zoning. Analyzing the disclaimer language in the P&S, the Court ruled that the clause was a bar to a claim for a verbal misrepresentation, but not to a written misrepresentation. In essence, the Court ruled that where a written representation was made by the broker concerning the specific zoning classification, the broker had a duty to verify that zoning classification.

Duty of Broker
Importantly, the Court did not rule that it was the duty of the broker to investigate the zoning classification in the absence of an affirmative written representation about zoning. In its decision, the Appeals 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 three-family. That remains the law today.

In its decision in DeWolfe the Appeals Court distinguished Quinlan, stating that the zoning classification had not been mentioned by the broker in Quinlan. By contrast, in DeWolfe the broker affirmatively identified the zoning classification in writing. Therefore, according to the Court, the broker had a duty to determine the proper classification.

Among the broker’s other defenses in DeWolfe were that the broker had relied on the seller who was the source of the “Business B” zoning information. While reasonable reliance by a broker on a “reputable source” can be a defense to a claim for misrepresentation, a factual issue was raised in DeWolfe concerning the source. That factual issue prevented dismissal of the misrepresentation claim on the grounds that it had been an “innocent misrepresentation.”

Much of the DeWolfe decision involves interpretation of the “No Warranties or Representations” disclaimer in the standard GBREB P&S. The Appeals Court concluded that its disclaimer barred claims for oral, but not written representations. The Appeals Court explained: “[W]hile an exculpatory clause was included in the warranties and representations section in the standard form purchase and sale agreement used by the parties, it explicitly excludes representations previously made in writing. As noted above, [the listing broker] misrepresented the zoning classification in writing on more than one occasion.

The case of Cone v. Ellis . . . cited in the dissent [of two Appeals Court justices], does not address the issue in this case. Cone involved an oral representation. . . . It is quite clear that under the language of the [GBREB] agreement used here, which is the same as that at issue in Cone, a buyer may not rely on such representations.”

Recommendations
Based upon the decisions in DeWolfe, Quinlan and Cone, it is recommended that listing agents make no representation about the specific zoning classification or compliance of a property. Without such, the agent has no duty to verify the classification or compliance. As noted educator Jody O’Brien teaches, the agent should be the “source of the source.” In other words, the agent should direct customers and clients who have concerns about zoning to the local building department or zoning board. The agent should not volunteer to investigate the issue and provide advice to the buyer. That policy is recommended whether the agent represents the buyer or seller. Alternatively, the agent should recommend that the buyer hire a qualified attorney to prepare a zoning opinion.

The ruling in DeWolfe will be undergoing further scrutiny in the next year. The Supreme Judicial Court has just agreed to accept a further appeal, so keep a look out for further reports