Is there a “Bulletproof” Clause to Eliminate Broker Liability?

ORLANDO – Members sometimes call the Florida Realtors® Legal Hotline asking if parties can come up with their own language to address issues in a contract. The answer is yes, parties to a contract can draft clauses with or without the help of a lawyer. However, drafting contract language that holds up to future judicial scrutiny is extremely challenging.

When courts are tasked with analyzing contract language, they have discretion to interpret what the language does (and doesn’t) do. Their analysis may incorporate ideas from statutes, prior cases, clauses found elsewhere in the contract or the behavior of the parties.

If that sounds daunting, it’s because it is. It’s the reason why the Florida Realtors Legal Hotline is unable to suggest simple language parties can add to contracts. It’s also why we can’t give a quick answer to questions about added language during our phone conversations.

Here’s an example of how a court analyzed a typed addendum (not a Florida Realtors form) that attempted to eliminate or reduce liability from the seller and listing broker:

The case is Syvrud v. Today Real Estate, Inc., 858 So.2d 1125 (Fla. 2d DCA 2003). After closing, the buyer discovered mildew damage, damage from water leaks, structural cracks and other structural defects. A contract addendum attempted to relieve the seller, listing broker and licensee of liability for the property’s condition. For context, the contract was an earlier version of the Florida Realtors/Florida Bar Residential Contract for Purchase and Sale.

Here’s a summary of the addendum:

Section (A) gave the buyer the right to inspect and cancel during an inspection period, also adding that “…the seller(s) and broker(s) make no verbal representations, warranties, or guarantees as to the condition of the property and it’s [sic] appurtenances and/or fitness for specific purpose.”

Part (B) provided that, although the brokerage firm may recommend inspectors or other professionals, it’s up to the buyers or sellers to carefully select whoever they choose. It also included a hold harmless “from any responsibility regarding the findings of inspections.”

Part (C) provided that the buyers and sellers must rely on themselves and other licensed professionals they choose to hire, not the brokerage firm. It ended with the sentence “The Real Estate Agents[’] opinions, if any, have been only in marketing and sales negotiations.”

Part (D) is just one sentence that provided “This contract is contingent on [B]uyer’s review and approval of a seller’s property disclosure statement within 7 days of receipt of said statement.”

While the trial court found that the addendum summarized above protected the seller and listing broker from claims of failure to disclose hidden defects, negligence and “real estate malpractice,” the buyer appealed. The appellate court disagreed with the trial court and reversed the ruling.

Here’s the appellate court’s analysis:

The court first addressed whether the addendum relieved the brokerage firm of liability to disclose hidden defects. It framed the addendum as “the functional equivalent of an ‘as is’ clause,” and, citing two cases, concluded “An ‘as is’ clause in a contract for the sale of residential real property does not waive the duty imposed by Johnson v. Davis to disclose hidden defects in the property.” Therefore, the brokerage firm could still be responsible if the buyer can prove their case against the brokerage firm back in trial court.

The court next addressed whether the brokerage firm could be liable for negligence. The court cited a case and law review article to show that “The effect of the disclaimer in the context of an action for negligence, however, is a question of fact subject to the jury’s determination of what was reasonable under the circumstances.” Therefore, the brokerage firm could still be responsible for negligence, depending on the jury’s conclusion.

The court went on to point out three additional reasons why the clause might not provide a shield from liability.

• First, the addendum failed to delete or even mention a provision in the body of the contract that contains an express warranty that “there are no facts known to Seller materially affecting the value of the Property which are not readily observable by Buyer which have not been disclosed to Buyer.”
• Second, since Part (D) of the addendum gave the buyer a right to review and approve a seller’s property disclosure, the court concluded “This paragraph indicates that the parties intended not to dispense with, but rather, to mandate compliance with the Johnson v. Davis requirements.”
• Third, the disclosure form the sellers chose to complete included yet another reference to Johnson v. Davis. The court concluded “In this case, the Sellers’ delivery to the Buyers of real property disclosures prior to closing in purported compliance with the rule of Johnson v. Davis on a form apparently provided by the Listing Broker is inconsistent with the Listing Broker’s claim that the Sellers were the beneficiaries of a contractual disclaimer of the duty to disclose.

Although this article is narrowly focused on showing one example of how challenging it is to write clauses in a way that they will survive judicial scrutiny, it’s worth noting that the Florida attorney general also weighed in on the question of how much protection clauses like this one can provide.

 The case we just discussed didn’t delve into how real estate license law impacts addenda like the one above, but this Attorney General Opinion letter (AGO) did:

In AGO 96-20 dated March 7, 1996, the attorney general concluded that “A licensed real estate broker or salesperson cannot be relieved of a professional duty or shielded from liability for a violation of the professional practices act by language contained in a sales agreement between a seller and a buyer of real estate. Any provision of a contract that purports to remove a real estate broker’s or salesperson’s liability for misrepresentation or other wrongdoing undermines public confidence in a regulated profession and is contrary to public policy and, therefore, void.”

Joel Maxson is Associate General Counsel

Note: Information deemed accurate on date of publication

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