The recent appellate case of Saffie v. Schmeling (E055716, 4th District Court of Appeal, March 7, 2014) suggests that a buyer’s broker has an affirmative duty to investigate whether a parcel is suitable for the commercial plans of the buyer and whether the local government regulations prohibit the buyer’s anticipated land use. On the other hand, the court found that the seller’s broker had a more limited duty in this context.
In Saffie, the buyer planned to purchase a parcel to construct a commercial building in Hemet, California. The buyer’s broker brought a parcel advertised on the multiple listing service (“MLS”) to the buyer’s attention. The listing stated that there was a 1982 geology report finding “no evidence of an active fault” and the local government had granted final approval of the report that same year. The buyer’s broker obtained a copy of the report, but the buyer’s broker did not read it or understand what a “fault hazard investigation report” was. He merely passed it to the buyer and recommended its review.
After the buyer purchased the parcel in 2006, it discovered that the 1982 report was stale, since the local government fault reporting requirements changed after the 1994 Northridge earthquake. The cost of obtaining an updated report made the commercial plans unfeasible. The buyer then sued the buyer’s broker and the seller’s broker for damages.
The trial court found the buyer’s broker liable for breach of fiduciary duty and negligence and assessed $232,147.50 in damages. By providing the report to buyer, the court found that the buyer’s broker implicitly represented that the report was current and parcel was “ready to build.” Saffie suggests that the buyer’s broker has a duty to become familiar with the terms of the proposed commercial activity and then reconcile them with the labyrinth of local government land use regulations.
The buyer did not, however, succeed in its claim that the seller’s MLS posting impliedly represented that the 1982 report was current and that the posting was “false or inaccurate,” under Cal. Civil Code section 1088. The appellate court upheld the trial court’s determination that the seller’s broker had no fiduciary duties to non-clients such as the buyer. The court stated: “[t]here is nothing in section 1088, or any other source of law, imposing responsibility on a seller’s broker to ensure that true statements in an MLS are not misconstrued, or to make certain that the buyer and the buyer’s broker perform the appropriate due diligence.” Since the seller’s broker did not expressly state that the parcel was presently buildable or that the 1982 report was current, there was no basis for liability. Overall, the opinion signals that a listing broker’s duties under section 1088 are very limited and the MLS posting will be read very narrowly and technically by the reviewing court.
Comment: Large commercial real estate transactions often present sizable exposures and, if the transaction fails, the buyer maybe inclined to blame the real estate professionals. Buyers may exaggerate their damages and may attempt to recover anticipated lost profits from the commercial activity, the value of a replacement parcel and their transactional costs.
In light of Saffie, it should be easier to obtain a dismissal of claims against the listing brokers, but the liability exposure of the buyer’s broker’s has been expanded. Saffie requires the buyer’s broker to become familiar with, among other things, geological reporting requirements with the local government and that should give those brokers pause. This is especially true where the commercial buyer’s plans contain novel activities for that parcel.
Gabriel Ullrich is an attorney in the Sacramento office. He can be reached at 916.483.5181 or