February 7th - 2012

Legal Beat: Case illustrates how not to represent a buyer

This case involved the sale of a Niagara Falls motel. The registrant, Neelam Bhalla and her brokerage, Sutton Group Results, acted in a multiple representation (dual agency) situation in the sale of the motel by Surma, the seller, to the buyers.

This case involved the sale of a Niagara Falls motel. The registrant, Neelam Bhalla and her brokerage, Sutton Group Results, acted in a multiple representation (dual agency) situation in the sale of the motel by Surma, the seller, to the buyers.

Bhalla's husband Narinder assisted in the transaction. He was not a real estate registrant but the buyers believed that he was. He was a former real estate salesperson and a previous motel owner.

The seller misrepresented the income and value of the motel, which sold for $2.6 million. The buyers moved into the motel and tried to operate it, although the revenue was significantly lower than they expected. They spent money on renovations and eventually sued.

The judge ruled that Narinder was Neelam's agent. He was described as “the front man, shepherding the deal through on his wife's behalf.” The judge found that, “Given their marital relationship and his extensive involvement in the negotiations,” Neelam knew what her husband was doing and accepted him as co-agent. He ruled that both she and her brokerage were responsible for any damages resulting from Narinder's actions. The trio (comprised of the seller, Narinder and Neelam) all grossly misrepresented the motel's value, exaggerating and falsely stating its worth. The seller was found liable for fraudulent misrepresentation.

The judge then considered the breach of duty of Bhalla and Sutton, finding that “the Bhallas failed miserably in carrying out their fiduciary duties.” Neelam admitted that she was concerned about the discrepancy between the financial statements and the seller’s previous estimate of revenues, but she failed to alert the buyers or recommend that they obtain an independent valuation.

Neela and Narinder Bhalla were thus found to have facilitated the seller’s misrepresentations of the motel's annual revenues. The couple also suggested a price that they knew or should have known far exceeded the motel's value. The judge said he inferred that that the Bhallas misrepresented both the motel’s value and revenues “in order to earn the sizable commission involved, which, at 3.5 per cent, equalled $91,000.”

The judge noted that Neelam “recommended a purchase price that bore little relation to market value.” In addition, she "failed to alert the plaintiffs of the huge discrepancy between the financial statements and what [the seller] had told her he was earning."

The defendants were found liable for damages, jointly and severally. That amounts to more than $946,000, plus costs.

1505986 v Surma 2010 ONSC 3907

MERV'S COMMENTS
This is an amazing story and cautionary tale of how not to represent buyers and how not to handle a multiple representation scenario. Commercial REALTORS® may want to read the entire decision to see what was done improperly. Some residential REALTORS® might also want to read this to learn more about how to avoid commercial deals with deceitful sellers.

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