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{legal Realtor®} Staying Out of ‘Intended Use’ Hot Water

by ROBERT S. KUTNER, ESQ. - Partner, Casner & Edwards | Nov 01, 2017
When a buyer discovers before closing that the property cannot be used for an intended purpose, most buyers will exercise a right to terminate the transaction. If the problem is not discovered until after closing, that discovery will frequently result in a lawsuit.
Claims against brokers usually include an allegation  that the broker’s description of the property misled the buyer into believing that the seller’s  use was legal or that the buyer told the broker about the  buyer’s intended use and the broker did not respond that  
the use was prohibited. 

The Court Case:      
In June 1998, a Mr. Clasby hired a broker to list and sell his three-family house in Boston. Mr. Clasby said that he had performed extensive renovations to all three units in 1995 and had permits from the building inspector. When the broker viewed the house, everything was consistent with what the seller said. 

The property contained three units, each with its own kitchen, bathroom, and required egresses. The broker gathered records from the tax assessor that showed that the property had been classified as a three-family house and had been taxed for three units or more each of the preceding 10 years. The broker listed the property as a three-family house, and, in August 1998, it was sold to the Quinlans. 

The Quinlans lived on the second floor while renting apartments on the first and third floors.  In 2001, the Quinlans decided to sell. A prospective buyer investigated zoning, but was unable to get confirmation that use as a three-family was lawful and the sale fell through.   

In March 2002, the Quinlans sold to another buyer for $70,000 less. In July 2003, the Quinlans sued Mr. Clasby for breach of contract and also sued the seller’s broker for violation of the Consumer Protection Act, Chapter 93A. 

Records from Boston Inspectional Services Department showed that in 1973 the Board of Appeals had granted a variance to use the property as a three-family house. However, the Board stated that only one residential unit was allowed above the first floor. Therefore, it was a violation to have dwellings on both the second and third floors. The broker involved in the 1998 sale to the Quinlans was not aware of the 1973 variance.

Following a four-day trial in February 2005, the jury found no breach of contract by Mr. Clasby, the seller. The trial judge asked the jury for an “advisory verdict” as to whether there had been an “unfair and deceptive” act or practice 
in violation of the Consumer Protection Act, Chapter 93A, by the broker. The jury found no violation, but the judge declined to adopt the jury’s decision on the 93A finding.  

The Appeal:

On appeal in 2008, the Massachusetts Appeals Court overturned the 93A decision of the trial judge. The Court ruled that the seller’s broker had no duty to determine zoning compliance and could rely on information provided by the seller, i.e., that the property was a three family, because that was consistent with the appearance of the property and the broker had no reason to conclude otherwise.

What Realtors® Need to Know:

Even when working as a buyer’s agent, a broker is at risk when offering advice concerning use of a property. Preparation of a zoning opinion requires legal training. If a buyer desires advice concerning what uses are legally permitted, the broker should recommend that an opinion be obtained from a qualified attorney.
Among the reasons to avoid providing such opinions is that preparing a zoning opinion involves analyzing thorny legal issues. For example, if a use pre-dates adoption of zoning by-laws by the city or town, the use may be “grandfathered” as a “non-conforming pre-existing use.”  However, grandfathering, may not provide the complete answer. If a use had been grandfathered, but that use had been discontinued for two years, the right to resume the non-conforming use may have been lost.
Even if the buyer’s intended use is not prohibited by zoning, there may be other issues that restrict use of a property.  

For example:  

  • The septic system may be too small to support the number of bedrooms that are physically present;
  • Proximity to wetlands on the subject property or a neighboring property may prevent construction of a desired improvement;  
  • Private deed restrictions may be an impediment; and 
  • Asking someone who is behind the counter at the local building department, board of health, or conservation commission will not always provide an adequate defense if the information is incorrect.
In addition, brokers should consider adding a disclaimer or comment to  listings and features sheets and in Purchase and Sale Agreements. A sample disclaimer is:

"Any description of the category (single family, multi-family, residential, commercial) or the use of this property, including the number of units, number/type of rooms or classification is not a representation concerning legal use or compliance with zoning by-laws, building code, sanitary code, or other restrictions.  If this information is important to a buyer, it is the duty of the buyer to seek advice from an attorney or written confirmation from the municipality.  The buyer shall not rely upon any representation, verbal or written, from any real estate broker or licensee concerning legal use."

When working as a buyer’s agent, it is recommended that a written agreement be signed by the buyer that agrees that the agent’s duties do not include determining lawful use.