Author: Kenneth L. Simpson, SIOR
How to Distance Yourself from a Lawsuit
By Trenton J. Hill, Esq. and Kenneth L. Simpson, SIOR
Oral disclosures made by a seller or landlord to you--a professional real estate licensee--or to your client, provide little protection from a lawsuit. Real estate licensees should employ deliberate, defensive techniques in the areas of property investigation and disclosure obligations.
The licensees obligation to investigate and disclose material facts about a property has been increasing for years. Formerly, real estate professionals who disclosed all personal knowledge they possessed about a property could close a transaction confidently with the knowledge that they had fulfilled their duties as agents. Now, merely disclosing what is known may not be enough. Many jurisdictions impose a "should have known" standard, mandating that every licensee undertake a thorough investigation. Thus, if a judge, jury, or arbitrator determines later that a reasonably diligent investigation by the licensees would have revealed a physical defect or other fact of consequence to a party to the transaction, it might well be found that the agent is liable for failing to detect and disclose that fact.
A little defensive strategy in the approach to the brokerage transaction can help distance licensee's from lawsuits based on allegedly inadequate investigations or disclosures. Here are some defensive brokerage techniques:
- Avoid making blanket statements offering to handle "all aspects" of a transaction. Consider promoting your access to a "team" of qualified outside professionals assembled to meet the specific needs of the transaction.
- Disclaim in writing any limitations on your engagement, or on your expertise. Transactions commonly involve electrical, geologic, structural, and other technical issues that are fields unto themselves. When these issues are present, responsibility for them should be expressly and unmistakably left with the client and his/her expert consultants. Otherwise, that responsibility may be found to be yours.
Listing Agent
- Guard against error by making doubly certain that the information submitted to the multiple listing service is accurate in every respect. Often seemingly innocent statements provide the basis for a lawsuit. Therefore, even if there seems to be certainty regarding the amount of power, railroad access, or other critical features of the property, disclaim any guarantee of the information that you are providing by, among other things, directing the reader to "please verify" the information independently.
- Be present at all showings and meetings. Collect business cards and the names of all parties present. Take notes of the conversations, and the times and dates of the meetings.
- Confirm in writing the intended removal or alteration of any manufacturing, lighting, telecommunications, or electrical installations or other systems. Determine in meetings with all parties (and their experts) where and how the installations are to be disconnected. Confirm these matters with all parties j, to ensure that these and any other changes will conform to everyone's expectations.
- Remember that there may not be a universal agreement on many critical terms, such as "improvements," "utility installations," or "fixtures." Seek to ensure that any uncertain terms are defined in the agreement so that the parties to the transaction understand and agree on the terms as used in the transaction.
- Inspect the property for any unauthorized or unanticipated changes during negotiations, during the document preparation stage, and again just in advance of the execution of the agreement.
- Have all the agents in the deal attend the property inspections. It may end up that you are each other's best witness to the events of the transaction.
- Exercise care in preparing the listing presentation and marketing letters concerning each transaction so that you do not unwittingly commit yourself to perform a service or "extra" that you did not intend to perform for that specific transaction.
- Walk the property with the client. Explain that the reason for the inspection extends beyond marketing to legal disclosure obligations. Take detailed notes, ask questions, document responses, identify and obtain copies of all available plans, approvals, and site restrictions, as well as structural and geologic reports. If the person conducting the walk-through is not the seller, ask questions that probe the depth of his or her familiarity with the property, such as maintenance, repair, and prior use issues. Be sure to learn the name, title, and length of service of the client's representative.
"Advise your client in writing . . ."
- Use a checklist like an AIR Property Information Sheet or other worksheet that can be counter-signed by the seller, which addresses the standard physical features of the property, common environmental issues, and governmental concerns.
- Take your own measurements of all ceiling heights, truck door sizes, and other building dimensions. Also, as an initial review, perform your own visual inspections of sprinkler, lighting, and mechanical systems.
- Have the seller approve all marketing materials in writing before they are disseminated, published, or made the basis of any verbal presentation.
Add Your Article
If you're an expert witness and you already have an account with us, please login and then click the add article link.
If you don't have an account with us yet, why not join now?