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Brokers May Be Liable For Misrepresentations Even Though Purchase and Sale Agreement Limits Liability

Brokers and sellers of property need to be cautious of what they put in writing to advertise a property for sale. The Massachusetts Appeals Court in DeWolfe v. Hingham Centre Ltd. ruled that a jury should decide whether a commercial real estate broker misled a man into buying property he had hoped to ultimately convert into a hair salon.

Historically, it has been difficult to hold brokers liable for alleged misrepresentations regarding properties listed for sale. Most real estate contracts include language stating that sellers and their agents could not be held to representations made outside of the purchase and sale agreement. The purchase and sale agreement executed by the parties in the DeWolfe case was the Greater Boston Real Estate Board's standard purchase and sale agreement which contained the following language:

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

Initially, in this case, a Superior Court judge followed the historical precedent and ruled in favor of broker M. Eileen Richards and her agency, Hingham Centre Ltd., in a civil action brought against them by Daniel DeWolfe.

In his Complaint, DeWolfe alleged that he purchased the seller's property after reviewing an MLS listing created by Richards stating that the property for sale was appropriately zoned for a hair salon. The judge ruled in favor of the broker at summary judgment without a trial.

However, the Appeals Court reversed that decision ruling that DeWolfe was entitled to a jury trial.

On appeal, the broker argued that the MLS listing contained a disclaimer and therefore the broker could not be liable for misrepresentations. However, the Appeals Court held that a newspaper ad listing the property contained the same inaccurate information about the zoning but included no disclaimer. The Appeals Court held that the broker made several written and verbal representations regarding zoning and prior to doing so had a duty to determine the proper zoning classification. Significantly, the Appeals Court held that "...disclaimers cannot be used to forgive fraud or deceit, and whether the defendant's actions fall into the category of intentional, reckless or merely negligent is a question to be determined by a jury."

Additionally, the Appeals Court rejected the Superior Court judge's basis for finding for the broker because the buyer was represented by an attorney during the real estate deal. The Appeals Court held that the lawyer retained by the buyer was not involved in exploring the zoning matter at hand.

Without suggesting the brokers did anything wrong, the Appeals Court held that the existence of a clause in the purchase and sale agreement stating that there was no reliance by the buyer upon a representation is not "an automatic defense to a claim that the seller engaged in a fraudulent or deceitful misrepresentation."

The Appeals Court held that the language in the Greater Boston Real Estate Board standard purchase and sale agreement permitted the buyer to rely on previously written representations, in the DeWolfe case, the MLS listing and newspaper ads. Therefore, if the broker's representations were fraudulent or deceitful and whether the broker's actions were intentional, reckless or merely negligent is a question to be determined by a jury.

This ruling by the Appeals Court is a departure from the precedent relating to broker liability and serves as warning for brokers and sellers everywhere to use caution when marketing real estate for sale especially in writing.

If you think you have been misled by a real estate broker during a purchase of property contact an experienced real estate litigation attorney at the Law Offices of Richard Mucci.

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