Salesperson Liable for Nondisclosure

Read the full decision: McGonigle v. Astle Realty, et al.

A federal district court in Kansas has found a real estate salesperson (“Buyers’ Representative”) liable for failing to disclose to his clients (“Buyers”) the existence of a dam on the purchased property and a related agreement with the local government that required Buyers to maintain the dam.  

In 1981, Dan Rich and his family (“Sellers”) purchased land on which an earthen dam, built by the Soil Conservation Service in 1951, is located.  At the time of purchase, Sellers entered into an agreement (“Agreement”) with the City of Hutchinson (“City”) that required Sellers to maintain the dam, including, at their own expense, removing tree growth from the dam.  Under the Agreement, the duty to maintain the dam would be passed on to any future buyers of the property.  The Agreement was recorded with the County Register of Deeds.     

Sellers built a home on the property and moved in.  Over the years, Sellers received numerous notices from the City and the Kansas Department of Water Resources informing them that they were failing to comply with their dam maintenance duties.  While the letters threatened to take action against Sellers if they did not come into compliance, no such action was ever taken, and tree growth on the dam continued unhindered.       

In 2008, Sellers retained Karen Gilliland (“Sellers’ Representative”), a real estate broker with Astle Realty, to list the property for sale.  Sellers informed Sellers’ Representative of the dam, and told her about the Agreement, including the fact that it had been registered with the County.  Sellers filled out a disclosure statement which failed to identify either the dam or the existence of the Agreement, and Sellers’ Representative listed the property on the MLS without disclosing the existence of the dam or the Agreement. 

Soon after the property was listed, Buyers expressed an interest in purchasing it and entered into an exclusive buyer agency agreement with Buyers’ Representative, a salesperson with Astle Realty.  The buyer agency agreement required Buyers’ Representative to disclose all known adverse material facts to Buyers. 

Prior to an offer being made, Buyers’ Representative and Sellers’ Representative met to discuss the property.   At this meeting, they discussed the existence of the dam, and Sellers’ Representative informed Buyers’ Representative of the Agreement and of Sellers’ ongoing obligations to maintain the dam.

Buyers’ Representative never disclosed the existence of the dam or the Agreement to Buyers.  Later that year, Buyers purchased the property.  Soon thereafter, Buyers became aware of the Agreement and their duties, as owners of the land, to maintain the dam.  (At trial, Buyers testified that they had been unaware of the very existence of the dam until after the purchase, but the Court discredited this testimony as unbelievable.)  Buyers also discovered that the work required to bring the dam into compliance could cost them up to a million dollars.       

Buyers sued Buyers’ Representative, Sellers’ Representative, and Astle Realty.  Their claims against Sellers’ Representative included fraud by silence, negligent misrepresentation, and violations of the Kansas Consumer Protection Act.  Their claim against Buyers’ Representative and Astle Realty was for breach of contract under the exclusive buyer’s agreement. 

The court dismissed all claims against Sellers’ Representative, holding that under Kansas law, a seller’s agent owes no duty to a buyer except to disclose all adverse material facts actually known by the agent.  In addition, a seller’s agent has no duty to conduct independent inspections of property or to verify the accuracy or completeness of any statements made by the seller.  Sellers’ Representative’s only duty to Buyers was to “competently pass on what was known,” and the court held that by informing Buyers’ Representative of the dam and the maintenance duties imposed on Buyer by the Agreement, Sellers’ Representative had fulfilled such duties.

However, the court did find that Buyers’ Representative and Astle Realty had breached the exclusive buyer agency agreement entered into with Buyers.  Because Sellers’ Representative had informed Buyers’ Representative of the existence of the Agreement and the duties it imposed, and Buyers’ Representative had failed to pass along this information to his clients, he and Astle Realty breached their contractual obligation to disclose all adverse material facts known to them about the property.  The court imposed damages of $202,500 against Buyers’ Representative and Astle Realty, finding that this award would suffice to cover the Buyers’ costs of tree removal.

McGonigle v. Astle Realty, et. al.  No. 10-1273-MLB, 2013 WL 3819458 (D. Kan. July 22, 2013). [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].