It’s an agent’s worst nightmare. You’ve procured the listing, successfully executed your marketing plan, and closed on the sale to a demanding buyer. And then, months or even years later, you find out that in some important respect the property was allegedly not as advertised. You learn of this in the most unpleasant way imaginable, by receiving a Chapter 93A letter from the buyer’s attorney demanding extortionate amounts of money. Your brokerage firm receives an identical Chapter 93A letter.
As every real estate licensee is taught, M.G.L. c. 93A, section 9, permits a consumer to recover damages and attorneys’ fees for harm caused by “unfair or deceptive conduct” perpetrated by a business, including a real estate agent. Before going to court the aggrieved individual must make a written demand for relief that identifies the allegedly unfair or deceptive conduct and specifies the damages. The recipient of the letter has thirty days to make a reasonable offer of settlement. The failure to do so when the claim has merit may lead to an award of treble damages and payment of the claimants’ attorneys’ fees.
It seems to be a longstanding tradition among attorneys to make these c. 93A demand letters as obnoxious as possible. The letters may embellish or distort the facts, mischaracterize good faith conduct as deliberate fraud, and inflate the claimed damages. While many chapter 93A claims can be successfully defended, it is best to avoid receiving such a demand letter in the first place. Even if a claim lacks merit, defending it is stressful and costs time and money.
It is well understood that chapter 93A mandates the disclosure to prospective buyers of any known issues or problems that would be material to a reasonable buyer of the property. But there can also be liability under chapter 93A and at common law for things that the broker did not know, if the broker has made statements in the course of marketing the property that turn out to be untrue. It is not necessarily a defense that the information came to the broker from the seller and that the broker believed the statements to be accurate. Where the broker has repeated these statements as facts while listing or marketing the property, the issue will be whether the broker acted reasonably in doing so.
Many 93A claims based on alleged marketing misrepresentations concern how a property can be used or is zoned. For example, a property may be advertised as having an in-law apartment that turns out to be unlawful under local zoning ordinances. A property may be advertised as having four bedrooms, but wastewater regulations allow only two. A property may be marketed as a two-family when only one unit is lawful. A room in the basement or attic advertised as an extra bedroom may fail to meet code requirements for windows or dimensions. The list goes on and on.
There was a time when real estate agents could take comfort in a general rule that zoning questions were for lawyers, not real estate agents. In Quinlan v. Clasby,71 Mass. App. Ct. 97, 103 (2008), the broker marketed a property as a three-family residence. Having looked at the property and at the municipality’s tax records the broker believed the use to be lawful.
As it turned out, the property had a variance that allowed three-family use, but only if the units were on the first floor. The upstairs units were being used unlawfully, as the buyer discovered years later when she tried to sell the property and had two deals fall through. The buyer sued both the seller and the broker for the lost market value she had incurred. On appeal of a decision against the broker, the Appeals Court reversed. The court stated that the broker did “all that was legally required” when he inspected the unit and looked at the tax documents. The court observed that had the buyers engaged an attorney when they first purchased the property, the zoning issue presumably would have been identified.
This victory for the brokerage industry was undercut a few years later by the case of Dewolfe v. Hingham Center Ltd, 464 Mass. 795 (2013). There the seller had informed the broker that a property located in a residential neighborhood was zoned for “Business B” uses. That was not actually a zoning category in the town, but the broker passed this information along and marketed the property as being permissible for business uses. The buyer, Dewolfe, intended to use a portion of the premises for a hair salon, only to learn, after the closing, that the property in fact could not be used for such purposes.
Distinguishing the case from Quinlan, the Supreme Judicial Court held that the broker should have suspected that the zoning information was inaccurate and was obliged to investigate further. The Court summed things up as follows: “Where it is reasonable in the circumstances for a broker to rely on information provided by the seller, the broker will not be liable for conveying such information to prospective buyers without conducting further investigation. . . . By contrast, where it is unreasonable in the circumstances for a broker to rely on information provided by the seller, the broker has a duty to investigate further before conveying such information to prospective buyers.” The Court stated that the reasonableness of the broker’s conduct presented an issue for the jury.
Where does this leave us? In many cases it will be for a jury to decide whether a broker acted reasonably in making a statement about a property’s attributes, zoning status, or permissible uses that has turned out to be incorrect. To avoid being on the wrong side of a 93A letter, or leaving one’s fate to a jury, a listing broker should undertake reasonable due diligence before marketing a property. If the property is going to be marketed as containing an in-law unit or as multi-family property, the broker should take reasonable steps to determine whether this is consistent with local zoning laws. If there is a bedroom in the basement or crammed in the attic it should not be described as a bedroom or included in the bedroom count without making a reasonable inquiry into whether it is a lawful bedroom. If there is doubt on any of these issues, the broker would be well-advised not to describe the questionable attribute as a fact in the listing or marketing materials and to disclose to the buyer in a prominent way, in writing, that the broker has not independently verified the lawfulness of the specific use in question. In situations such as these, it is better to be safe than sorry.