Square Footage Misrepresented on MLS? What Happens Next?
What is the effect on a signed agreement of purchase and sale when the buyer discovers prior to closing that the square footage in the MLS listing was inaccurately inflated?
Rescission may be obtained on the basis of a non-fraudulent misrepresentation where the defendant has made a false statement that was material and induced the plaintiff to enter into the contract. The effect of a material misrepresentation is to make an executory contract voidable, not void. On acquiring knowledge of the misrepresentation, the deceived party has the right to elect to affirm or rescind the contract within a reasonable time after the misrepresentation is discovered. An “entire agreement clause” or a general exclusion clause will not override a specific representation on a point of substance which was intended to induce the making of the agreement. (Issa v. Jarrah).
The remedy of rescission of a contract may be obtained on the basis of misrepresentation where the defendant made a false statement that was material and induced the plaintiff to enter into the contract: (Issa v. Wilson).
Facts that courts consider in determining whether the misrepresentation is material include: whether the discrepancy is so material that it would affect the purchase price; whether the discrepancy was known, or ought to have been known to the purchaser; and whether it would have impacted the decision of a reasonable person to purchase the property. (Zhang v. Lin).
The requirement that the misstatement of fact be material means that the misrepresentation must relate to a matter that would be considered by a reasonable person to be relevant to the decision to enter the agreement in question. In addition to being shown to be material, the misrepresentation must have constituted an inducement to enter the agreement upon which the misrepresentee relied. Thus, a representee who undertakes his or her own separate investigation of the facts would not be held to have relied on the misrepresentation. On the other hand, it is clearly established that the representee has no obligation to engage in “due diligence” and make such an independent investigation, even where the means of doing so are made available by the misrepresentor. Further, it is clearly established that the misrepresentation need not be the exclusive or even a predominant inducement for entering the agreement. It must be established, simply, that it was an inducement. Moreover, once it is established that a misrepresentation is of such a nature that it is liable to induce the misrepresentee to enter the contract, it would be presumed against the misrepresentor that such inducement did occur. (Zhang v. Lin).
It is not an absolute proposition of law that where a purchaser inspects a property their reliance on a misrepresentation as to the size of the property will be displaced. In some cases, it has been applied; in other cases, it has not governed because of a constellation of facts that would make a strict application unfair in the circumstances. (Issa v. Wilson).
In Issa v. Jarrah, the purchaser signed an agreement of purchase and sale but refused to close a transaction after an appraisal revealed that the property was actually only 1,450 square feet, as opposed to the 2,000-2,500 square feet stated in the listing agreement. In addition, the vendor and his real estate agent had represented that the property was 2,000 square feet or greater. Ferguson J. ruled that the purchaser was induced into entering the agreement of purchase and sale by the misrepresentations and ordered the rescission of the agreement of purchase and sale. The vendor was also ordered to return the purchaser’s deposit. (Issa v. Jarrah)
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