When the Massachusetts Supreme Judicial Court speaks, people listen, and real estate professionals should pay particular attention to the SJC’s April 11 decision in DeWolfe v. Hingham Centre, Ltd.
In 2004, a couple listed their Norwell property with a broker, incorrectly stating that the property was commercially zoned. The property was actually in a residential zone. The broker published the incorrect zoning information in newspaper ads and the Multiple Listing Service. Responding to the ad, a hairdresser viewed the property and told the broker that he planned to use it for a six-station hair salon. The broker advised him in writing that a hair salon was an allowed use. Relying on this advice, the hairdresser signed a purchase and sale agreement prepared on the Greater Boston Real Estate Board’s standard form. The agreement included this familiar exculpatory clause:
“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.”
After the closing, the hairdresser learned that the property was in a residential zone where his hair salon was prohibited. He sued the broker and the seller for misrepresentation. The broker maintained that her misrepresentation was a mistake, and the buyer should have determined the zoning status independently. She also argued that the exculpatory language in the standard form agreement released her from liability. The trial court agreed with the broker, and dismissed the case against her. However, the Appeals Court overturned this dismissal, and the case ended up before the SJC.
A Hair-Raising Situation
The SJC noted that brokers have a duty to exercise reasonable care in making representations to prospective buyers. While recognizing that brokers may ordinarily rely on information from sellers, the SJC warned that brokers must take reasonable steps to avoid disseminating false information. The SJC questioned whether the broker had taken such steps before passing along the sellers’ misrepresentation on zoning, and held that the trier of fact (in this case a jury) must determine whether the broker acted reasonably.
The SJC also ruled that the standard exculpatory clause in the purchase and sale agreement did not release the broker from liability. Before the buyer signed the agreement, the broker had made written misrepresentations about the zoning classification. According to the SJC, the exculpatory clause expressly carved out written misrepresentations made before the parties signed the agreement. Therefore, the SJC vacated the trial court’s dismissal of the suit against the broker, and returned the case to it for further proceedings.
The SJC’s decision underscores two noteworthy points. First, brokers should not opine on zoning and other legal matters, even if they are only sharing information from sellers. When asked about such legal matters, a broker’s best response is simply “I cannot answer that question. You need to consult an attorney.” Some brokers should consider practicing this response in front of a mirror repeatedly, until it becomes habit.
Second, the SJC’s interpretation of the exculpatory clause will surprise many who believed that the clause limited buyers’ reliance to representations and warranties specifically stated in the purchase and sale agreement, and excluded those in outside writings. The SJC’s decision contradicts that belief. After the ruling inDeWolfe v. Hingham Centre, Ltd., real estate professionals might want to revise the standard clause to avoid the consequences of the SJC’s interpretation.
Chstopher R. Vaccaro is an attorney in Stoneham. Email: cvaccaro@verizon.net.
