Q: Last year I was the Listing Agent on a 2.8-acre unimproved parcel. Before I took the listing, I called the County Building Department and was told that the zoning permitted minimum one-acre parcels; the person I spoke to said that the owner could do a lot split so long as the size of each of those twp lots was greater than the one-acre minimum. Based on my research, I wrote in the MLS: “2.8 ACRES. COUNTY STATES 1 ACRE MIN. LOT COULD BE SPLIT.”
After escrow closed, the Buyer applied for a lot split; he wanted to build a home on each lot. He was told that, while the building department would normally permit minimum one-acre lots, the County’s General Plan had designated this area as an “Impact Sensitive” zone with minimum four-acre lots; thus, no lot split could be granted and building was restricted. After the Buyer was officially denied a lot split, he sued me for misrepresentation.
I can’t believe this. The CAR Vacant Land Purchase Agreement (“VLPA”) that was used provided that the Buyer was to investigate all matters affecting the Property. Under the heading “Zoning and Land Use”, the VLPA specified that the Buyer should investigate past, present or proposed laws and regulations which could impact the Buyer’s future development of the Property. In big bold print, the VLPA stated:
“BUYER AND SELLER ARE AWARE THAT BROKERS DO NOT GUARANTEE, AND IN NO WAY ASSUME RESPONSIBILITY FOR THE CONDITION OF THE PROPERTY.”
What did I do wrong? I did not guarantee a lot split. I relied on what I was told by the County. The Buyer had the contractual duty to investigate. Doesn’t the bold print language above protect me from being sued?
A: Unfortunately, this post-close of escrow claim highlights the dangers of Agents researching off-site matters, such as public records and making representations in the MLS based upon those findings. From your description, the whole County had not said the lot could be split; only a person at the Building Department said that and that person has no liability for failing to disclose that other County restrictions may prevent the granting of a lot split.
I. CALIFORNIA CASE LAW: MANDERVILLE v. PCG&S GROUP (2007)
The Appellate Court in Manderville dealt with similar facts. The Court held that the Agent’s language in the MLS that there could be a lot split was not true. The Court concluded that any “exculpatory” language in the contract, such as what is in the CAR contract forms, does not automatically protect the Broker who has included false information in the MLS. The Appellate Court noted that under California law, anyone who has “been guilty of fraud” in inducing a contract, cannot “absolve himself or herself from the effects of his or her fraud by any stipulation in the contract” that they are “not responsible.”
The Appellate Court found that the exculpatory language does not “as a matter of law” prevent a Buyer from suing the Broker for misrepresentation; although the Buyer was advised to investigate the use of the Property and had a “right” to do so, there was no “obligation” to investigate the proposed development.
Lesson: Exculpatory language in standard purchase agreements, advisories and disclosures may not completely protect Brokers and their Agents; real estate licensees can still be sued if they have made an affirmative representation in the MLS that turns out to be untrue. If Agents and Brokers are sued, they will probably go through a very long and expensive trial and the outcome is never guaranteed.
II. CALIFORNIA STATUTORY LAW
One legal issue that was not dealt with in the Manderville Appellate decision was that in California, Brokers are responsible for their statements in the MLS. Whenever Agents put information into the MLS (rather than simply accepting the data that is auto-populated by the MLS from a governmental or quasi-governmental, source), the Agent must make sure that the information is completely accurate. Civil Code Section 1088 provides:
“If an agent … places a listing or other information in the multiple listing service, that agent … shall be responsible for the truth of all representations and statements made by the agent or appraiser of which that agent or appraiser had knowledge … to anyone injured by their falseness or inaccuracy.”
III. GOVERNMENTAL IMMUNITY
Agents should not rely on any information obtained from a public agency or government department. If that entity provides incorrect or incomplete information, there is no basis to seek damages from the government. “Governmental immunity” protects the Federal, State and local entities and their employees; that means they are not liable for their mistakes, but Agents could be liable for repeating the bad information that they provide.
One consistent problem in “checking” with a governmental entity is that when it comes to land use, the restrictions of multiple public agencies may apply; the fact that one public entity may state that a specific act, such as a lot split, is permissible, does not mean that the specific act will ultimately be approved or allowed for that owner. The owner may need to secure approval from ALL of the entities or departments that have authority to restrict land use where the Property is located. At the local level that may involve going through the building department permit process, zoning and General Plan compliance requirements, health and safety department requirements, a design review committee, and planning commission hearings. It may even entail securing federal, state and/or regional approvals from agencies such as Fish & Wildlife and the Coastal Commission. It just takes one governmental entity to stop an owner from developing their property as advertised by the Agent.
PRACTICE TIPS
- Agents should not investigate public records, such as building files, on their own. Whenever possible, have the clients investigate those public records with the assistance of a land use specialist who knows all of the various public agencies that may need to be contacted to determine what can actually be developed. If you go alone and miss something which makes your investigation inaccurate or incomplete, you can be held liable.
- Do NOT make affirmative representations in the MLS or any other marketing materials regarding what can or “may be” done in the future with any Property regardless of what information is provided by anyone. If those statements are wrong, the Buyer may be able to sue for misrepresentation or fraudulent inducement of contract.
- ATTRIBUTE, DISCLOSE AND DISCLAIM. If you receive information or documents from a third party (such as the Seller, public officials, a neighbor) regarding the use or development of a property, that information should be put into the AVID and always use the A.D.&D. format: “Attribute the statement to the specific person or source of the information, disclose what was said and “disclaim” in writing that you have not further investigated or verified that information and that Buyer “needs to investigate with their own professionals to determine whether or not the Property can be used or developed as intended by the Buyer.”
This Weekly Practice Tip is an attorney-client privileged document for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
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