The Supreme Judicial Court (SJC) yesterday issued its decision in the closely-watched case of DeWolfe v. Hingham Centre, Ltd.  The SJC has concluded that a broker can be liable for a written misrepresentation regarding zoning, despite languageshear negligence? in a commonly-used form purchase and sale agreement that some thought protected the broker from such liability.  We discussed the Appeals Court’s 2011 decision in this case in this previous entry.

The facts are refreshingly simple.

The owner of a property in Norwell, Massachusetts told the defendant listing broker either that the property was zoned “Residential Business B” or that it was zoned “Business B.”  The broker was not aware of any prior business use of the property.  Though she saw businesses located across the street, she observed only houses adjoining the property on either side.  Apparently without further investigation, the broker advertised the property in at least two newspapers as being zoned “Business B.”

The plaintiff, DeWolfe, wanted to buy a property to which he could move his existing hair salon, and he contacted the broker after seeing one of the ads. DeWolfe also saw the Multiple Listing Service (MLS) listing that the broker had created, which also said the property was zoned “Business B.”  Further, the broker placed at the property copies of pages from the town’s zoning by-law that listed hair salons as “Permitted Business Uses” in the Business B District.  The plaintiff bought the property, and after the closing discovered that the property was in fact in a “Residential B” district, where the contemplated hair salon was not allowed.  Of course, he sued.

The broker relied on the following clause in the standard form purchase and sale agreement (P&S) published by the Greater Boston Real Estate Board (GBREB), which the parties had used for this transaction:  

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.

The broker sought dismissal of the case on the ground that, in light of this language, she could not be held liable for the faulty written the seller had provided to her.  As we now know, the SJC disagrees.

The SJC begins its decision by noting that a broker ordinarily may rely on information provided by the seller in making representations about a property.  However, the court goes on to rule that, “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.”

Here, the owner testified that he told the real estate broker that the property was zoned “Residential Business B.”  The experienced broker apparently knew that there was no such zoning district in Norwell, and instead advertised the property as zoned “Business B.”  In addition, the broker was aware of no prior business use of the property, and had observed houses – not businesses – adjoining the property on either side.  Based on these facts, the SJC concluded that a jury could find that the broker was on notice that the information provided by the owner was unreliable, and acted unreasonably in representing the property as zoned “Business B” without conducting any further investigation.

Turning to the language in the GBREB standard form P&S, the SJC held that, under the language quoted above, a buyer can rely on prior written representations that are not set forth or incorporated in the agreement.  Therefore, the agreement did not protect the broker from liability arising from the written misrepresentations in the newspaper ad, the MLS listing, and the inapplicable zoning by-law placed at the property.

The SJC has sent the case back to the trial court to resolve the factual question of whether the broker acted unreasonably (i.e. negligently) in misrepresenting the property’s zoning status.

This decision reinforces that, in Massachusetts, the best policy for a broker (or a seller) is to say little, and say it carefully.  In the wake of this decision we may see changes to the GBREB form P&S in an effort to give future brokers the protection that many believed the current form already provided.