The Duty of Residential Real Estate Brokers and Salespersons to Disclose Property Condition to Buyers
| Pages | 435 |
| Publication year | 2021 |
70 CBJ 435. THE DUTY OF RESIDENTIAL REAL ESTATE BROKERS AND SALESPERSONS TO DISCLOSE PROPERTY CONDITION TO BUYERS
Residential real estate brokers and salespersons(fn1) create a market for the sale of residential real estate. Their function is to bring buyers and sellers together, negotiate their transaction, and assure that all matters preliminary to closing the sale are accomplished. This process requires discussion between the brokers and salespersons and sellers and buyers regarding a broad spectrum of issues ranging from the quality of life in the community, to specific matters concerning the property itself, such as structural integrity, zoning requirements, the availability of water, the quality of sewage facilities, and the location of property boundaries. The conduct of the parties in these transactions has resulted in the creation of statutory and common law regarding disclosure(fn2) of property condition as between the sellers, buyers, real estate brokers and salespersons involved in the transactions.
Because real estate brokers and salespersons may be considered agents or subagents(fn3 )of the sellers and buyers,(fn4) the law intensifies and refines the duty of disclosure among the parties, and creates liability where, under theories of caveat emptor, there
might not otherwise have been any.5 In addition, under principles of agency law, the disclosures of the brokers and salespersons may be imputed to the sellers or buyers who are their principals,(fn6) and brokers are liable in actions brought by third parties against their salespersons.(fn7) Salespersons, or agents and subagents, are also liable for their own disclosures, whether or not they are acting for a broker or principal.(fn8) Thus, brokers and salespersons may be liable for disclosures regarding matters pertaining to residential real estate transactions, and may create liability for their principals.(fn9)
The notion that a person has a duty to disclose something pertaining to a sale implies that the subject of disclosure is or may be of importance to the person to whom the duty is owed within the context of the desirability or value of the subject matter of the sale. The urgency of the duty to disclose would, therefore, seem to bear directly on the extent to which the person to whom the duty is owed is, or reasonably would be, desirous of receiving the information. The law recognizes this distinction when it addresses issues regarding the "materiality" of representations or nondisclosures.(fn10) The central importance of the principle of materiality in matters concerning disclosure is recognized in Section 20-320 of the Real Estate Licensing Law, which states, inter alia, that brokers and salespersons may be fined or have their licenses revoked or suspended if they are found guilty of "(1) Making any material misrepresentation" or "(2) making any false promise of a character likely to influence, persuade or induce."(fn11) The section goes on, however, to include among the prohibitions bearing on disclosure "any act or conduct which constitutes dishonest, fraudulent or improper dealings."(fn12)
The cases in Connecticut show that materiality is an important factor in any cause of action grounded in disclosure. However the term is subject to varying descriptions depending on the court's usage. Taken together, the common law and statutes give rise to issues concerning the duty of disclosure of real estate brokers and salespersons, which suggest that any disclosure, regardless of its nature or dimension, that results in damage to a buyer of real estate may be actionable in law or equity. Exposure to liability exists regardless of the passage of legislation in Connecticut requiring disclosure of property condition by the sellers of real estate. This exposure is questioned in view of the function of real estate brokers and salespersons as the creators of markets for the sale of real estate, most often as agents of the seller. Plainly stated there is no sense, either in the law or as a practical matter to impose disclosure liability on real estate persons regarding matters that might have an adverse impact on the very transaction they are paid to bring about and nurture to a conclusion, under conditions where the seller of the property has a statutory duty to disclose property condition
The purpose of this article is to provide a rationale for eliminating the common- law duty of disclosure of property condition for real estate brokers and salespersons, and to propose a concept of exclusive liability for sellers based on revised legislation requiring disclosure by sellers of all material matters which affect the desirability or value of the property to the buyer.
Part I of this article examines the Connecticut case law regarding disclosure in residential real estate transactions generally, dividing the subject by categories of disclosure.(fn13) An effort is made to discuss the bulk of the law regarding disclosure .whether or not a real estate agent is involved, since the principles of law are equally applicable to both situations as a result
of the Agency relationship between the parties. Part 11 examines Connecticut statutes that are relevant to issues of disclosure, including Connecticut's property condition disclosure law. Part III analyzes the law regarding property condition disclosure in light of the realities of real estate practice. Part IV proposes a statutory solution for eliminating the common-law duty of disclosure of property condition imposed on real estate brokers and salespersons.
1. Silence or Nondisclosure of Material Facts
In Waters v. Hartnett(fn14) the plaintiff sued to recover a deposit made for the purchase of real estate based on the defendant seller's failure to disclose a subsurface water condition which rendered the property unsuitable for building. The complaint also alleged fraudulent representations by the real estate agent involved in the transaction. The court found the real estate agent not liable and the seller liable for his refusal to disclose the water condition. As to the seller's silence regarding the water condition, the court said:
Mere silence, however, or failure on the part of the vendor to disclose does not ordinarily amount to fraud. The disclosure must be by a person intending or expecting thereby to cause a mistake by another to exist or to continue in order to induce the latter to enter into or refrain from entering into a transaction.(fn15)
2. Negligent Misrepresentation
While there is no Connecticut decision pinpointing a defendant's liability for negligent misrepresentation in a real estate transaction, the courts have recommended the suitability for such an action. In D'Ulisse-Cupo v. Board of Directors Of Notre Dame High School,(fn16) where the plaintiff alleged negligent misrepresentation in an employment matter, the court, citing two cases involving alleged misrepresentation in real estate transactions,(fn17) said it had
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long recognized liability for negligent misrepresentation. We have held that even an innocent misrepresentation of fact may be actionable if the declarant has the means of knowing, ought to know, or has the duty of knowing the truth.(fn18)
In Homan v. Daughters of the Holy Spirit, Inc.,(fn19) the plaintiff alleged that the defendant real estate broker failed to disclose that property which the plaintiff purchased was in the direct flight path of an airport. The court denied plaintiff's motion to strike the defense of the plaintiff's contributory negligence, stating that if the plaintiffs allegations sounded in negligence, contributory negligence would constitute a defense.
In Steele v. Hartford Hospital,(fn20) another employment case, the court cites D'Ulisse-Cupo and Homan with approval.
In Petrone v. Melnick,(fn21) a real estate agent was also the seller of a house. Her broker was sued as principal for alleged fraudulent and negligent concealment, and nondisclosure of defective conditions by the salesperson/owner. The court found that the broker would be liable for the tortious conduct of its "employee" if the salesperson acted fraudulently or negligently.(fn22) However, the court found, the salesperson did not so act, and the broker/ principal was, therefore, not liable.
3. Fraudulent Nondisclosure: False Representation, Failure to Make Full Disclosure
In Franchey v. Hannes(fn23) the defendant discussed the boundaries of property sold to the plaintiff but failed to mention that a pool and garden encroached on neighbor's property. One of the defendants, amazingly, said, "We wondered how long it would take you to find out about this."(fn24) The court said that the physical appearance of the property alone did not give rise to a duty to speak, as concluded by the trial court. However, the facts brought the case within the widely accepted rule that
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Although a vendor may, under the circumstances, have no duty to speak, nevertheless if he does assume to speak, he must make a full and fair disclosure as to the matters about which he assumes to speak. He must then avoid deliberate nondisclosure.(fn25)
The court concluded that the defendant's failure to make a full disclosure "was the equivalent of a false representation."(fn26)
4. Innocent Misrepresentation
In Richard v. Waldman & Sons, Inc.,(fn27) the defendant sold real estate to the plaintiff, delivering a plot plan that incorrectly showed the property boundaries. The defendant was innocent as to the representation, and believed the plot plan to be correct. The court, finding the defendant liable, said
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