No
Duty to Investigate Property's Zoning
reprinted courtesy N.A.R. legal affairs site 3/8/08
Massachusetts appellate court has considered whether a brokerage could be
liable under the state’s unfair trade practices law because the brokerage did
not ascertain the zoning for a property it had listed for sale.
In 1992, Richard Clasby (“Seller’) purchased a building which contained four
separate apartments. The Seller decided to convert the building into three
separate units, and so began seeking the necessary permits from the zoning
board. The Seller then discovered a 1974 decision from the local zoning board
allowing the building to be used as a “three-family residence”. Determining
that he did not need another variance approval, the Seller withdrew his request
for a variance and began converting the property into three separate units.
The Seller listed the property for sale with Elizabeth Dynan (“Salesperson”) of
O’Kiley Real Estate Agency (“Brokerage”) in 1998. The Salesperson and the owner
of the Brokerage, Gayle Kiley (“Broker”), inspected the property and also
obtained the tax records for the property. The tax records showed that the
property had continued to be taxed as a four-family residence even after the
1995 conversion. Without checking the zoning for the building, the Brokerage
marketed the property as a three-family residence.
Brian and Warren Quinlan (“Buyers”) purchased the property from the Sellers.
They continued to use the property as a three-family residence. The Buyers
listed the property for sale in 2001 and received an offer to purchase.
However, the transaction collapsed when the purchaser learned that the property
was not a lawful three-family residency. The Buyers discovered that they would
need to seek relief from the zoning board of appeals in order to correct this
problem.
The Buyers filed a lawsuit against the Seller and the Brokerage. The
allegations against the Seller were for breach of contract, misrepresentation,
and intentional infliction of emotional distress, while it was alleged that the
Brokerage breached the state’s unfair or deceptive trade practices act (“Act”).
The jury returned a verdict in favor of the Brokerage and the Seller.
Notwithstanding the verdict, the trial court judge ruled that the Brokerage
should have confirmed the legal zoning status of the property prior to
marketing the property as a three-family residence. The judge did find that the
Brokerage had not willfully misled the Buyers. The judge awarded the Buyers
almost $100,000 in damages and attorneys’ fees from the Brokerage. The
Brokerage appealed.
The Massachusetts Appeals Court reversed the trial court and ruled that there
was no duty for a real estate professional to investigate a property’s zoning.
While the Act generally imposes liability on those who make willful
misstatements of facts during the conduct of trade or business, the Act can
also impose liability when the truth could have been reasonably ascertained.
Since the trial court had ruled that the Brokerage had not made a willful
misstatement of facts, the only remaining issue was whether the Brokerage
should have reasonably known that the property was not a lawful three-family
residence.
The court ruled that based on the facts of this case, the Brokerage had no duty
under the Act to investigate the property’s zoning status. Real estate professionals do not usually review
zoning laws, and the Salesperson did not have any reason to question the
property’s zoning. The Seller told the Broker and Salesperson the property was
a three-family residence, and they visited the property and witnessed that the
property was being used as a three-family residence. The Brokerage did everything that was legally required of a real estate
licensee. The court also noted that if the Buyers had hired an attorney
to handle the transaction, the attorney may have uncovered the zoning defects
but the real estate licensees were not obligated or trained to investigate the
property’s zoning. Thus, the court reversed the trial court’s ruling in favor
of the Buyers and reinstated the jury verdict.
Quinlan v. Clasby, No. 06-P-1500, 2008 WL 192150 (Mass. App. Ct.
Jan. 25, 2008). [This is a citation to a Westlaw document. Westlaw is a
subscription, online legal research service. If an official reporter citation
should become available for this case, the citation will be updated to reflect
this information].
Editor’s Note: The Massachusetts Association of REALTORS filed
an amicus curiae brief in support
of the Brokerage and alerted Legal Affairs to this decision.
original link at
www. realtor.org/letterlw.nsf/pages/0208quinlan?OpenDocument&WT.mc_t=LS021308&WT.mc_n=Legal
reprinted courtesy N.A.R. legal affairs site 3/8/08
brought to you by Wailea Makena Real Estate Inc.
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