Broker not Responsible for Tenant Disclosure

U.S. District Court for the District of Rhode Island; Wallace v. U.S.A., 2004

April 1, 2005

Under federal statute, a brokerage is responsible for disclosing the possible presence of lead-based paint to a prospective purchaser or renter of homes built before 1978. But this duty doesn’t extend to subsequent transactions involving the same property but not the broker.

In this case, a buyer purchased a property built before 1978 belonging to the U.S. Department of Housing and Urban Development. Neither the broker who’d listed it nor HUD provided the buyer with the required disclosure form and pamphlet.

After purchasing the property, the buyer leased it but didn’t provide the lead paint disclosure required of landlords. When the tenant applied for a Section 8 housing subsidy, the housing authority inspected the property for lead paint and didn’t note its presence. Shortly afterward, however, children living in the home were found to have elevated levels of lead in their bloodstreams.

The landlord, the tenant, and the children sued the brokerage. The federal court found the brokerage may have been negligent in failing to make lead disclosures to the landlord during the purchase of the property. Still, the court said, that negligence didn’t extend to subsequent transactions the landlord entered into, so long as the broker had no part in them.

Oral contract can still be source of claim

Supreme Court of Utah Fericks v. Lucy Ann Soffe Trust, 2004

Two buyers agreed to purchase a property from a trust, which was represented by real estate salesperson Joe Goodman. The contract called for two earnest money payments. Several days before the second earnest money payment was due, the buyers asked Goodman for a 30-day extension. The salesperson promised to send a written document granting the extension. One day before the second payment was due, the buyers again called Goodman and asked for written confirmation of the extension. The salesperson promised to send it the next day, but the buyers never received it. Two days later, Goodman notified the buyers their contract was terminated.

When the buyers contacted a representative of the trust to discuss the cancelled contract, they learned Goodman had never requested an extension on their behalf. They also learned that after they’d asked for an extension, the trust had received another, higher offer. The buyers sued the sellers, demanding performance of the purchase contract, and the brokerage, alleging fraud and intentional interference with a contractual relationship. The buyers contended the misrepresentation was part of a plan by the brokerage and the sellers to induce them to breach the contract.

The trial court disallowed both suits on the basis that a contract can’t be modified verbally under the statute of frauds and was therefore unenforceable. However, the Utah Supreme Court found the buyers’ allegations could allow them to collect. The court said when an oral contract representation—in this case the extension request—is a circumstance of the alleged fraud, the statute of frauds doesn’t bar a claim for damages.

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