Who is liable when a real estate agent provides incorrect information to a buyer in connection with a property purchase? In a recent ruling, the Supreme Court (SC) has clarified the distinction between the seller's and the agent's liability in real estate sales.
Background: Incorrect information about electricity connection
The case concerned the purchase of an undeveloped property where the contact between the parties took place exclusively through the estate agent. The estate agent incorrectly told the buyer that the property was connected to the electricity grid. After the purchase, it turned out that there was no electricity, so the buyer claimed compensation for the connection costs from the seller.
The buyer claimed that the property deviated from what was promised (Chapter 4, Section 19 of the Land Code), while the seller claimed that he had neither provided the information nor was aware that the estate agent had done so.
The legal issue: The seller's responsibility for the estate agent's "own" information
The case went all the way to the Supreme Court, which had to decide to what extent the seller is liable for information about the property that the broker has provided to the buyer in connection with a real estate purchase.
The Supreme Court began by clarifying the broker's legal position under the Real Estate Brokers Act. Important principles that the Supreme Court highlighted in this connection:
- The broker must pass on information, but is also expected to check the accuracy of the information when there is reason to do so.
- If a broker is negligent in providing information, the broker may be liable for damages to the buyer or seller.
The Supreme Court's assessment
Since the Land Code does not explicitly regulate the seller's liability for the broker's information, the Supreme Court arrived at the following principle:
In order for a seller to be liable for a misstatement by the broker, the seller must have known, or should have known, that the broker had made the misstatement.
In this case, it was found that:
- The seller had not informed the agent that the property was connected to the electricity grid.
- The estate agent had drawn his own incorrect conclusions without the seller's knowledge or fault.
- There was no evidence that the seller should have realized that incorrect information had been provided.
As the seller was in good faith regarding the broker's actions, he was not considered liable for the information and the buyer's claim was therefore dismissed.
What does this mean for buyers and sellers?
The ruling clarifies the division of responsibilities and underlines the importance of diligence:
As a seller: Always review the property description and all marketing materials carefully. If you accept a description that contains inaccuracies, you may be liable for defects in the property. Therefore, make sure that the agent has not added any false statements of their own.
As a buyer: Be aware that the seller's liability for the agent's oral representations is limited if the seller is acting in good faith. If a specific statement is crucial to your decision to buy the property, you should make sure it is included in the written purchase contract.
As an agent: Do not jump to conclusions or guess at the facts. All information about the property's characteristics should be derived from the seller or written documentation. When the seller is released from liability because of a statement made by the agent personally, the agent becomes the buyer's only remaining party to claim against.
