MA court ruling highlights potential exposure of real estate brokers to liability for actions of third parties

By Edward D. Shoulkin

A recent decision by a Massachusetts Superior Court judge highlights the potential exposure of real estate brokers for conduct primarily attributable to third parties.

In Schoembs v. Schena, residential home buyers claimed damages arising from structural changes in the home they purchased. The house had been constructed on loose fill or peat, which apparently had caused the house to shift.

The buyers sued a number of parties, including the sellers of the house, the sellers’ broker, their own buyers’ broker, as well as the home inspection company they hired to inspect the property prior to closing. The buyers alleged, among other things, that each one of those parties had misrepresented the condition of the home prior to the closing.

The claim against the buyers’ own broker was largely tied to the adequacy of the services provided by the home inspector. According to the buyers, the broker had offered to select a home inspector for them.

The buyers did not object to the broker’s choice of inspector. Upon learning that the buyers would be out of state for some period of time, the broker told the buyers that he could schedule the inspection and attend it himself.

The inspector’s report mentioned slanting in the floor and cracks in the foundation, which the inspector did not believe would worsen. The inspector also noted that he was unable to inspect some of the foundation because the basement was mostly finished, which obstructed access to the foundation.

The buyers alleged that their broker was negligent in recommending the home inspector, and that the broker failed to adequately check the qualifications, reputation, experience or reliability of the home inspector. The buyers also claimed that the broker did not take steps to ensure that the inspection performed by the home inspector was “meaningful.”

Seeking to dismiss the claims, the broker moved for summary judgment, arguing that the “merger” provision in the Purchase and Sale Agreement (P&S) barred the buyers’ claims.

The P&S stated that the property would be delivered in the same condition as it was in at the time that the agreement was signed, and that the buyers were entitled to inspect the property. It also provided that the sellers and brokers made no additional warranties or representations to induce the buyers to purchase the property, and that the buyers agreed to purchase the property “As Is.”

The judge declined to dismiss the buyers’ claim against the broker on the basis of the merger provision. In his decision, the judge recognized that, under Massachusetts law, the merger doctrine precludes claims based on the provisions of a purchase and sale agreement after the deed has passed to the buyers, unless such provisions are encompassed in the deed.

However, the judge noted an exception to the merger doctrine, which he believed to be “instructional” in this case.

Specifically, the judge wrote, “there is an exception to the effect that promises in the original agreement which are additional or collateral to the main promise to convey the land and are not inconsistent with the deed as given are not necessarily merged into the deed, but may survive and be enforced after the deed is given.” [citation omitted].

In other words, if the contractual duty in dispute is deemed to be collateral to the primary promise of transferring title, then the duty falls within an exception to the merger doctrine. A claim based on an alleged breach of that collateral promise or issue would not be precluded by a merger provision in the P&S.

The judge determined that the provision in the P&S relating to compensation for the broker’s services was “additional or collateral” to the primary promise of the agreement of transferring the property. Accordingly, he held that the merger doctrine did not bar the buyers’ claims against the broker

To be sure, the judge’s denial of the brokers’ summary judgment motion does not mean that the buyers will prevail against the broker at trial, nor is it a guarantee that the claims against the broker will even be tried. Nevertheless, the decision illustrates that brokers may be exposed to claims arising from the alleged acts and omissions of other parties involved in the sale of a property.

Ed is a partner in the Boston office of Barton Gilman. His practice includes defending professionals in a wide range of professional liability matters.