Exculpatory clauses in purchase and sale agreements.

The purchase of residential real estate may be the largest purchase a person makes in their life. The magnitude of this purchase and the potential for financial loss should cause a purchaser to proceed with caution. A recent case that discusses exculpatory clauses in purchase and sale agreements reinforces the need to get expert help from an attorney when purchasing real estate.

In Massachusetts, there are a number of standard form purchase and sale agreements. The most widely used form is the Greater Boston Real Estate Board form. This form has a clause that reads as follows:

"The BUYER acknowledges that the BUYER has not been influenced to enter into this transaction nor has he relied upon any warranties or representations not set forth or incorporated in this agreement or previously made in writing, except for the following additional warranties and representations, if any, made by either the SELLER or the Broker(s): NONE

This clause is called an exculpatory clause because it excuses the Broker from liability. Many Buyers think the Broker is working to protect the Buyer when in reality, the Broker is working to protect themselves.

In the recent case of DeWolfe, v. Hingham Centre, LTD, 464 Mass. 795 (2013), the Court addressed a case involving interpretation of this clause. In the DeWolfe case, the Broker had made a written representation concerning the zoning of the property in question. This representation turned out to be incorrect. The purchase and sale agreement had the exculpatory clause with the word “none” inserted. The Broker claimed that as a result of this clause, the Broker had no liability for the negligent misrepresentation. The Court ruled that because the representation was in writing, the exculpatory clause did not protect the Broker. As a result, the Buyer was able to successfully sue the Broker for damages as a result of the Broker's mistake.

The clear message from this case is that the exculpatory clause is valid and will protect the Broker from a lawsuit from the Buyer for oral or verbal misrepresentations. When signing a purchase and sale agreement, it is important that the Buyer insert any and all representations or statements made by the Broker if the content of the statement is important to the Buyer. I ask every Buyer if the Broker made any statements that if they turn out to be false will cause the Buyer to not purchase the property. The best practice is that any oral or written statements that are important to the Buyer should be inserted into the purchase and sale agreement.

Another lesson from this case is that Brokers can change the language of the exculpatory clause to exclude liability for written statements or representations by the Broker. Buyers should be vigilant to protect against the Broker eliminating liability for representations.

An experienced real estate attorney should modify this clause to continue liability if the Broker makes a misstatement about an important fact.