Ruling Upheld over Sewer Access

Read the full decision: Hall v. Eagle Rock Dev., LLC

Tennessee appellate court affirms lower court ruling that buyers could rescind purchase contract and receive an award of attorney’s fees because the seller and the listing broker had failed to properly disclose to the buyers that the property had limited sewer access.

A couple (“Buyers”) sought to purchase an investment property. The Buyers learned about an empty lot available in a development from the developer’s (“Developer”) exclusive listing firm (“Listing Broker”). While there was a dispute over whether the Buyers discussed sewer access with the Listing Broker while visiting the property, the MLS listing for the property stated that utilities were available near each property but it was the owner’s responsibility to connect the property to the utilities. There were also sewer grates on the street in front of the property.

Local health officials issued a certificate on June 8, 2006 that stated the maximum building size that could be built on the property for sewage purposes was a two-bedroom house (“Certificate”). The Buyers signed a contract to purchase the property on June 16, 2006 but never received the Certificate. In the seller’s disclosures, the Developer checked “no” to indicate there was no public sewer. The agency disclosure form identified the Listing Broker as the Buyers’ representative, but the Listing Broker also signed the purchase agreement on behalf of the Developer. The transaction closed on June 30, 2006.

The Buyers immediately listed the property for sale and found a buyer in 2009. However, the transaction fell apart when the buyer discovered the Certificate and its limitations on building. The Buyers then filed a lawsuit against the Listing Broker and Developer claiming breach of contract and seeking attorney’s fees pursuant to the state’s consumer fraud act.

The trial court ruled the Buyers could rescind the purchase agreement because of a material misrepresentation about the property’s sewer access. The court also awarded the Buyers their attorney’s fees because the Listing Broker had failed to disclose to the Buyers that he was a member of the entity selling the property. The Listing Broker and the Developer appealed.

The Court of Appeals of Tennessee, Knoxville, affirmed the trial court. The court agreed with the trial court’s conclusion that the evidence showed that the Buyers were led to believe that the property would have public sewer access. Both the Developer’s website and the MLS listing stated that the sewer would be available, and there were sewer grates in front of the property. Additionally, the seller disclosure form stating that there would not be sewer access for the property was signed on March 15, 2006, or three months prior to sharing with the Buyers. The court found that sewer access was a material factor in the Buyers’ decision to purchase the property and the access was misrepresented to them. Therefore, the court affirmed the rescission of the contract and ordered the return of the Buyers’ purchase price.

Next, the Listing Broker argued that it should not be liable for attorney’s fees because the Listing Broker was not a party to the purchase contract. Tennessee’s consumer fraud act allows for the award of attorney fees if an individual engages in a deceptive trade practice while in commerce with consumers in the state.

The court rejected the Listing Broker’s argument, finding that the trial court had properly found that the Listing Broker had engaged in a deceptive trade practice when it misrepresented the sewer access and therefore the Buyers could collect attorney’s fees pursuant to the statute. The court also found that the Listing Broker’s failure to disclose his affiliation with the developer also constituted a misrepresentation in violation of the consumer fraud act. Thus, the court affirmed the trial court’s award of attorney’s fees to the Buyers.

Hall v. Eagle Rock Dev., LLC, No. E201501487COAR3CV, 2017 WL 3233496 (Tenn. Ct. App. July 31, 2017)

[This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information.]

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