As you know, when possible we like to share the stories of lawsuits that have been filed against the Company and our agents.? Often, those stories can help us avoid similar problems in the future.? In a recently settled case, we represented the seller of a $2 million property in Los Angeles.? The buyers were the music producers of the television show “Glee,” and planned to make significant modifications to the property, including turning the garage into a music studio.? As a result, any prior work done to the property, and whether that work was done with permit and to code, was of great interest to them.

Given that issue, in the seller’s disclosures, we tried to ensure that she gave all relevant information to the buyer.? In her TDS, the seller stated that there were modifications made without permit and not to code.? In her explanation of that disclosure, the seller identified a wall that was added to one of the property’s bedrooms.? That was all the seller disclosed in this regard.? Additionally, however, our agent disclosed that the garage at the property had been converted without a permit.? In this case, that was all our agent knew and therefore all she could disclose.

Furthermore, because of the buyers’ interest in this issue, the Purchase Agreement provided that the seller would deliver all plans for work performed at the property to the buyer.? Our agent also promised to provide the buyer with permits.? As a result, our agent went to the Department of Building and Safety and filled out a form asking for all permits and documents related to the property.? Upon returning to her office, however, and discussing the transaction with a colleague, our agent was told that we do not provide permits.? She was reminded that the Civil Code specifically says that our inspection duties do not include an inspection of public records and, therefore, if the buyer wants permits, they need to go to the City themselves.? As a result, when she was notified that the permits were available, our agent did not pick them up and never provided them to the buyers.? Therefore, when escrow closed, the buyers were not aware that the documents showed significant additional work done without permits and that numerous stop orders had been issued regarding work started by the sellers.? As a result of these conditions, the buyer was required to bring the entire property up to code before making their own renovations.? According to plaintiffs, the extra costs exceeded $1.2 million.

Of course, a lawsuit against Prudential, the seller and the buyer’s agent followed.? The claim against Prudential related specifically to the permits, and the fact that our agent took it upon herself to provide them to the buyer.? While it is clear that we had no duty to do so, the plaintiffs argued that by going to the City and requesting documents, our agent assumed the duty to provide them to the buyer and her change of course, and failure to pick the permits up, constituted a breach.? The case was recently resolved for a 6 figure settlement.

So, what is the lesson from this case?? First, do not go to the City to pull permits.? As? I stated above, the Code specifically says that we do not have to do so.? If your buyer wants permits, refer them to the City themselves, or to a company that will pull them directly.? By getting a third party involved, we avoid the responsibility that what we provide may be incomplete.? In the worst case, go to the City with your client, but let them request the documents.? That way it is their responsibility, not ours.? Next, however, you need to remember that if you accept a greater duty than required, you need to perform it competently. If you go to the City to get permits, you need to be sure that you deliver what you get to the buyer.? If you get an extra inspection report regarding some system, you need to be sure to turn it over.? You cannot go half way, or decide in the middle of performing a job that you shouldn’t have started it in the first place.? Once you start doing something for a party, do it completely and do it well.? That way, no one can argue that you breached a duty you voluntarily assumed.

As always, please contact your manager with any questions you may have and they will get the Legal Department involved, if necessary