A Massachusetts appellate court just made a decision and parsed out some English grammar in a manner that got a brokerage firm in some hot water. The facts of the case and the decision of the court are interesting.
In 2004 Sellers listed their home for sale with a real estate broker. One of the sellers advised the broker that the property was zoned as allowing residential business. There were no other businesses on the block. Buyer came along and saw the Broker’s advertisements indicating the property permitted small business to operate at that property. Buyer was interested in opening a hair salon. Buyer made an offer which was accepted by Seller.
The purchase agreement contained the following statement:
“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.” [See AAR Residential Resale Real
Estate Purchase Contract Section 5c at lines 170-184 for somewhat similar language.]
Of course, in short order, after closing escrow, Buyer learned his dream of opening a hair salon at the subject property was shattered. Naturally, Buyer sued the Broker and Brokerage Firm claiming misrepresentation. Based on the above language the lower court found in favor of the Broker and the Brokerage Firm. The Massachusetts Supreme Judicial Court affirmed the appellate court (lots of time and money!!). The Broker argued that she had no duty to confirm the status of the property’s zoning and the above quoted language protected the Broker and the Brokerage Firm from liability. The court found that real estate professionals can be liable for negligent misrepresentation if they fail to exercise reasonable care in making representations to clients. The court pointed out that normally a real estate agent can rely on a representation of a client but such protections does not insulate the real estate professional from claims. The court indicated that the question is whether the real estate professional exercised reasonable care in making the statement(s) in question. Thus, if it is unreasonable for the broker to rely upon the information provided by the seller, then the broker has a duty to further investigate the information. So there is a question of whether it was reasonable under the circumstances for the Broker to make the representation made in this case about the zoning despite having received the information from the Seller given that there were no other businesses on the block.
The court took up the issue of whether the above quoted language from the contract attempting to protect the Broker was effective. The court noted that the Broker interpreted the language as indicating that the Buyer did not rely on any warranties or representations when entering into the purchase agreement since none was spelled out and the word “NONE” was inserted. However, the Buyer claimed he read the clause to mean that he could only rely on representations contained in the agreement itself, those made in writing, or those expressly provided at the end of the agreement thus allowing him to rely upon the advertisements prepared by the Broker. [Just when you think you have all your bases covered there is another argument!!] The court agreed with the interpretation of the Buyer saying it was the most plausible. NOW GET THIS. The court indicated that “not” applies to both of the phrases following it because the phrases are linked by the conjunction “or”. Based on that construction, the Buyer could have relied upon the written representations made by the Broker in the advertisements for the property.
So, the Supreme Court sent the case back to the lower court for further proceedings. Meanwhile it is 2013. Remember, this started in 2004. The wheels of justice grind slowly.
See – DeWolfe v Hinghma, Ctr., 985 N.E.2d 1187 (Mass. 2013).
Thanks to National Association of REALTORS® for information about this case.