Nooks and Crannies

Our January newsletter outlining current litigation information regarding rental property liabilities for Realtors and Brokers in the State of New Jersey.

(PRWEB) January 24, 2009 -- How about some good news for a change?

Earlier this month, in a case captioned Reyes v. Egner and Prudential Fox and Roach, the Superior Court of New Jersey [Docket A-5977-06T3] considered whether a broker who had facilitated a two-week summer rental of Jersey shore property should be responsible for injuries caused when one of the tenants fell from a deck which had an inconspicuous and unexpected drop at the door leading outside from the master bedroom and no hand rails on the steps leading to the ground. Both conditions violated the existing Construction Code. The trial and Appellate Courts each found in favor of the broker - and dismissed the case - based on the brokers compliance with its obligation to inspect the property by conducting walk-throughs. In doing so, the Court repeated its earlier pronouncement that brokers do not have a duty to "search every nook and cranny" of a rental property.

In Reyes, the broker's office and rental manager testified she conducted a walk-through of the property at the time the house was listed for rental. The walk through consisted of taking photographs and doing inventory, including checking the number of bedrooms, chairs, televisions, and other major contents. She did not notice any "glaring" safety problems. She said that her company does not provide property management, a function which she considered to be the owners' responsibility. Another agent in her office also participated in an earlier walk-through with the owners of the property at the time of purchase about six months prior to the incident at issue.

To establish the broker's alleged liability, plaintiffs' offered an expert, the owner of a real estate agency and a school for real estate brokers. This expert opined that the broker had a duty to conduct a visual inspection of the property and such an inspection should have included examining whether there was anything materially affecting the property, including any latent defects. According to plaintiff's expert, the broker was required to assure that the dwelling was safe and habitable. More specifically, plaintiff invoked N.J.A.C. 11:5-6.4 (d) which requires, among other things, that "[e] very licensee shall make a reasonable effort to ascertain all material information concerning the physical condition of every property for which…he or she is retained to market as a transaction broker". A "reasonable effort" is defined within that regulation as a "visual inspection of the property to determine if there are any readily observable physical conditions affecting the property". N.J.A.C. 11:5-6.4(b)(1)(ii). Plaintiff's asserted, through its expert, that the condition which caused Plaintiff's fall should have been observed by the broker.

The broker presented an expert report from a past chairperson of a County Board of Realtors. This expert opined that the broker did not have an obligation to conduct an inspection and that the rental agreement imposed no such duty. In addition, the expert asserted that the broker met the requirements of N.J.A.C. 11:5-6.4 since she made a reasonable effort to ascertain information about the physical condition of the property via her walk through.

The trial court dismissed the broker from the case after determining that the broker owed no duty of care to the plaintiffs, emphasizing that the broker had not contracted with the owner to make repairs or to re-inspect the property and observing that the broker received "only a nominal fee" from the lease agreement. Taking into account the nature of the parties relationship, the attendant risk, and the opportunity and ability of each party to exercise care, the trial judge concluded that "it would be unjust to impose a duty upon [a broker]" to have performed an inspection for the plaintiffs' protection. Plaintiff appealed the trial judge's decision.

The Appellate Court referenced a 1993 Supreme Court case with which you might be familiar: Hopkins vs. Fox & Lazzo Realtors in which the NJ Supreme Court held that a real estate broker has a duty to conduct a reasonable inspection in accordance with the overall responsibilities and function of a broker, and to warn of any discoverable physical conditions of the property that pose a hazard or danger to visitors of open house tours. In that case the court decided that brokers should be mindful of the safety of prospective buyers and visitors who tour an open house reasoning that a real estate broker in a sales context receives tangible economic benefits from the relationship with potential buyers who visit the home, beyond the potential sale of the particular property. The Court also observed that "[i]t is highly foreseeable that visitors to an open house could be injured by dangerous conditions during the course of wandering through an unfamiliar house".

Importantly, the Supreme Court also found that the duty to inspect for an open house does not require a broker to warn against dangerous conditions that are not known to the broker, or which would not be revealed during the course of the inspection that a broker might reasonably discover while examining a residence for sale and preparation for an open house. The Hopkins Court stressed that the broker's duty "does not replicate the more comprehensive duty owed by homeowners" and that "the broker is not a guarantor of the safe condition of the premises". Further, "it should not be expected that a broker, engaged in the marketing or sale of the property, has the same intimate knowledge of the structural flaws or physical defects of a given home as the homeowners".

The Appellate Division panel deciding the Reyes case appeal also cited Rogers vs. Bree wherein a tenant claimed that a real estate broker had a duty to inspect the premises for latent defects and, thus, was responsible for an injury that he suffered when he attempted to remove an improperly functioning washing machine. In that case the Court highlighted the "limited scope" of the broker's undertaking (receiving a commission for accepting rent, paying maintenance fees and being the contact person for repairs) and refused to impose a duty upon the broker "to search every nook and cranny of the rental premises to discovery latent defects". Put in context, the brokers agreement to assist the homeowner did not create a duty on the broker's part to "inspect the appliances, and pull them away from the wall to determine if they were operable, or if they contained hidden dangers".

In this month's case, the Appellate Division remarked that the broker "simply advertised the property, collected rent, and agreed in its contract with the owners to make emergency repairs only". The Court determined that certain modifications which had been made to the wooden platform by the owners and installation of hand rails could not be classified as "emergency repairs". The Appellate Division further determined that "although [the] walk-throughs [were] not described by the witnesses as inspections, they appeared to satisfy the broker's regulatory obligations at the time of the sale".

The Court also confronted plaintiffs contention that N.J.A.C. 11:5-6.9 (which creates a duty for the broker to inspect the property and disclose "defects of a material nature affecting the physical condition of the property which a reasonable inspection by the licensee would disclose"), did not apply to "short term rentals" (a rental for not more than 125 days, or a seasonal rental of the nature presented in the Reyes case).

In the end, the Appellate Division affirmed the trial court's dismissal of the broker because, in New Jersey, brokers are not required to "search every nook and cranny", at least not when facilitating short-term rentals.

If you or someone you know is defending themselves from a claim like the ones described in this article please contact us for a free consultation.

-Dan Posternock

***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

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