INTRODUCTION
WHAT MUST A VENDOR DISCLOSE?
CRITICISMS OF USING AN SPIS
REVIEWING THE SPIS
RELEVANT CLAUSES OF AGREEMENT OF PURCHASE AND SALE
REPRESENTATIONS AND WARRANTIES
DOCTRINE OF MERGER: DO REPRESENTATIONS SURVIVE CLOSING?
CASE REVIEW
ROLE OF THE REALTOR WHEN REPRESENTING THE BUYER
ROLE OF THE REALTOR WHEN REPRESENTING THE SELLER
CONCLUSIONS
SAMPLE PRACTICE PROBLEMS
INTRODUCTION
The OREA Seller Property Information Sheets (“SPIS”) asks questions about the condition of the home. It states that the answers are being provided for information purposes only and are not warranties. It also warns that sellers are responsible for the accuracy of all answers.
The use of Disclosure Statements is mandatory in some places, but in Ontario, and elsewhere in Canada, they are voluntary although “strongly recommended” by real estate agents. At the Thunder Bay Real Estate Board Level, the SPIS, which is published by the Ontario Real Estate Association (OREA), is mandatory. If the statement is not submitted to the board within 48 hours of listing a house, the Board will pull the listing from MLS until it is submitted. The SPIS can be crossed out and shown “As Is”, but must be signed by the seller.
The questions in the SPIS may require complex answers and many lay people may not understand the questions. It is arguable the SPIS asks sellers to disclose more than they are required to do by the law. A problem with the forms for Real Estate Agents is that if the seller gets sued, then the agent may be joined in the action for their role in using/preparing the forms
“Real estate agents are not lawyers and should not be expected to provide legal advice. The practical reality, however, is that many individuals in real estate transactions likely rely on their real estate agent for legal advice.” Lyle v. Burdess, YK, 2008”.
The vast majority of residential real estate transactions close as scheduled, without problems or disputes. Some lawyers argue that the chances of any given real estate deal resulting in litigation involving the buyers, sellers and real estate agents increase when the agents insist that the sellers complete a SPIS. On the other hand, many experienced Agents argue that the use of SPIS has eliminated much litigation, and creates certainty for the information given to the buyer.
The object of this paper is to clarify the use of the SPIS and explain how the courts interpret the SPIS.
WHAT MUST A VENDOR DISCLOSE?
Before there ever was an SPIS, the Doctrine of Caveat Emptor (“Buyer Beware”) applied. Absent fraud, mistake or misrepresentation, a purchaser would take an existing property as he found it, whether it was decrepit, bug-infested or otherwise uninhabitable, unless he/she protected himself by contract terms.
The current law is that a vendor is not under a duty to disclose patent defects of quality; however they have an obligation disclose latent defects which render the property unfit for habitation or defects which render the property dangerous or likely to be dangerous. There is no duty to disclose defects which affect the value (only) of the lands. There is an obligation to disclose habitation or dangerous deficiencies discovered after the Agreement is signed but before closing. Nonetheless, vendors are not liable if they have no knowledge of the latent defect.
From a consumer protection standpoint a move away from the harshness of caveat emptor to a full disclosure model is defensible. Many agents argue that by reducing the representations to writing there is less likelihood that the answers will be misinterpreted. As several agents have noted – if the Vendors won’t complete the Disclosure Statement, we wonder what they are trying to hide?
CRITICISMS OF USING AN SPIS
- Disclosure Statements require Vendors to disclose more information than a Vendor would normally have to disclose.
- The average layperson probably doesn’t understand many of the questions let alone know the correct answers.
- They may be seen as an attempt to protect the real estate agents.
- They offer more protection to the vendor, than the purchaser.
- It does not directly disclose the actual condition of the property. It requires the vendor to say no more than that he or she is not aware of problems.
- Places buyers in an advantageous bargaining position being armed as they are with a list of all known defects, patent and latent.
REVIEWING THE SPIS
The following are some of the sections or paragraphs from the SPIS Form 220. The bullet points after them are commentary on the same.
“ANSWERS MUST BE COMPLETE AND ACCURATE This statement is designed in part to protect Sellers by establishing that correct information concerning the property is being provided to buyers. All of the information contained herein is provided by the Sellers to the broker/sales representative. Any person who is in receipt of and utilizes this Statement acknowledges and agrees that the information is being provided for information purposes only and is not a warranty as to the matters recited hereinafter even if attached to an Agreement of Purchase and Sale. The broker/sales representative shall not be held responsible for the accuracy of any information contained herein.”
- A CRITICISM OF SPIS FORMS MAY BE MORE FOR THE PROTECTION OF THE AGENT – IS THIS LIKELY TO PROTECT YOU IF THEY ASK YOU HOW TO FILL IN THE FORM, AND THE ADVICE IS WRONG!
- THE OTHER SIDE OF THIS CRITICISM IS THE FACT THAT:
- (a) nobody knows the property (and especially the latent defects) better than the owner/vendor;
- (b) owners/vendors sometimes hide latent defects from their agents; and
- (c) if the roof leaks or the well goes dry the broker and the agent often get sued along with the vendors – for “discovery” if nothing else.
“BUYERS MUST STILL MAKE THEIR OWN ENQUIRIES Buyers must still make their own enquiries notwithstanding the information contained on this statement. Each question and answer must be considered and where necessary, keeping in mind that the Sellers’ knowledge of the property may be incomplete, additional information can be requested from the Sellers or from an independent source such as the municipality. Buyers can hire an independent inspector to examine the property to determine whether defects exist and to provide an estimate of the cost of repairing problems that have been identified. This statement does not provide information on psychological stigmas that may be associated with a property.”
- THIS IS TO TRY AND SHOW THE BUYER KNEW THEY MUST DO THEIR OWN INVESTIGATION.
“General:” Section
- When answering the questions, they must be filled out by the seller (not the agent). Agents must ensure that the seller initials every box, as this will prevent agents from being accused of incorrectly filling out the SPIS on behalf of the seller, and then having the seller sign them, and the agent later being held liable in Court.
“2) Does any other party have an ownership, spousal or other interest in the property?”
- MANY PEOPLE DON’T REALIZE THAT A SPOUSE CAN HAVE A POSSESSORY INTEREST EVEN THOUGH THEY ARE NOT ON TITLE
“5) Are there any encroachments, registered easements, or rights of way?”
- TO DISCOVER ANY ENCROACHMENTS, A SURVEY OF THE PROPERTY MIGHT HAVE TO BE DONE. MANY OWNERS WOULD NOT KNOW ABOUT RIGHTS OF WAY, AS THESE COULD BE SUCH THINGS AS AN UNREGISTERED EASEMENT (FOR EXAMPLE, HYDRO MAY HAVE AN UNREGISTERED EASEMENT FOR OVERHEAD POWER LINES)
“8) What is the zoning on the subject property?”
- TO KNOW THIS ANSWER, THE OWNER MAY NEED TO SEE THE ZONING MAP FOR THE CITY
“9) Is it legal non-conforming (if it does not comply with zoning)?”
- MOST PEOPLE DO NOT KNOW WHAT THIS MEANS, LET ALONE THE ANSWER.
“11) Are there any restrictive covenants that run with the land?”
“12) Are there any drainage restrictions?”
- THE SUBDIVISION AGREEMENT WITH THE CITY RESTRICTS CHANGES IN GRADE.
“13) Are there any local levies or unusual taxes being charged at the present time or contemplated?”
- THIS IS AN EXAMPLE OF HOW VENDORS HAVE TO DISCLOSE MORE THAN THEY WOULD NORMALLY HAVE TO DISCLOSE
“16) Is the property connected to municipal water and sewer?”
- IF NOT, FORM 222 MUST BE COMPLETED.
The following are the relevant paragraphs from Form 222:
Form 222:
1. (c) are you aware of any problem re: quantity of water?”
• CURRENT ACTUAL KNOWLEDGE – MUST YOU DISCLOSE PROBLEMS IN PRIOR YEARS.
“(d) are you aware of any problems re: quality of water?”
• IN THE PAST WERE THERE WATER SAMPLES THAT FAILED?
“21) Are there any past or pending claims under the Ontario New Warranty Program?”
• IS THIS JUST WHILE THE SELLER OWNED THE PROPERTY?
Form 220, Continued:
ENVIRONMENTAL
“3) Is the property subject to flooding?”
• DOES ONE FLOOD MEAN ITS S.T. FLOODING? DOES ‘PROPERTY’ MEAN THE WHOLE PROPERTY OR JUST THE HOUSE?
“4) Is the property under the jurisdiction of any Conservation Authority or Commission?”
• THIS IS ANOTHER EXAMPLE OF HOW VENDORS HAVE TO DISCLOSE MORE THAN THEY WOULD HAVE HAD TO DISCLOSE BEFORE THESE SHEETS WERE MANDATORY. DOES THE SELLER HAVE THIS KNOWLEDGE?
IMPROVEMENTS AND STRUCTURAL:
“7) Are you aware of any moisture and/or water problems?”
• DOES “ANY” MEAN YOU HAVE TO DISCLOSE A LEAK THAT WAS FIXED? I.E. ROOF? BASEMENT?
“12) Is there any lead, or galvanized metal plumbing on the property?”
• IF THE SELLER DIDN’T BUILD, HOW DO THEY KNOW WHAT PLUMBING THERE IS.
Bottom of Page 2 of Form 222
“THE SELLERS STATE THAT THE ABOVE INFORMATION IS TRUE, BASED ON THEIR CURRENT ACTUAL KNOWLEDGE AS OF THE DATE BELOW. ANY IMPORTANT CHANGES TO THIS INFORMATION KNOWN TO THE SELLERS WILL BE DISCLOSED BY THE SELLERS PRIOR TO CLOSING. SELLERS ARE RESPONSIBLE FOR THE ACCURACY OF ALL ANSWERS. SELLERS FURTHER AGREE TO INDEMNIFY AND HOLD THE BROKER HARMLESS FROM ANY LIABILITY INCURRED AS A RESULT OF ANY BUYER RELYING ON THIS INFORMATION. THE SELLERS HEREBY AUTHORIZE THAT A COPY OF THIS SELLER PROPERTY INFORMATION STATEMENT BE DELIVERED BY THEIR AGENT OR REPRESENTATIVE TO PROSPECTIVE BUYERS OR THEIR AGENTS OR REPRESENTATIVES. THE SELLERS HEREBY ACKNOWLEGE RECEIPT OF A TRUE COPY OF THIS STATEMENT.”
• CURRENT ACTUAL KNOWLEDGE – ATTEMPT TO LIMIT NEED TO MAKE INQUIRIES BY SELLER;
• IMPORTANT THAT YOU LET THE SELLERS KNOW THAT IF SOMETHING COMES UP AFTER THE AGREEMENT OF PURCHASE AND SALE, THAT THEY HAVE TO DISCLOSE PRIOR TO CLOSING – IN WRITING PREFERABLE
• THIS IS AN ATTEMPT TO PROTECT AGENTS – “INDEMNITY”
RELEVANT CLAUSES OF AGREEMENT OF PURCHASE AND SALE
“13. INSPECTION: Buyer acknowledges having had the opportunity to inspect
the property and understands that upon acceptance of this Offer there shall be a binding agreement of purchase and sale between Buyer and Seller. The Buyer acknowledges having the opportunity to include a requirement for a property inspection report in this Agreement and agrees that except as may be specifically provided for in this Agreement, the Buyer will not be obtaining a property inspection or property inspection report regarding the property.”
“24. AGREEMENT IN WRITING: If there is conflict or discrepancy between
any provision added to this Agreement (including any Schedule attached hereto) and any provision in the standard pre-set portion hereof, the added provision shall supersede the standard pre-set provision to the extent of such conflict or discrepancy. This Agreement including any Schedule attached hereto, shall constitute the entire Agreement between Buyer and Seller. There is no representation, warranty, collateral agreement or condition, which affects this Agreement other than as expressed herein. For the purposes of this Agreement, Seller means vendor and Buyer means purchaser. This Agreement shall be read with all changes of gender or number required by the context.”
REPRESENTATIONS AND WARRANTIES
One of the questions which the courts have been wrestling with is whether the statements contained in the “SPSI” or disclosure statements are representations or warranties. The third sentence in the first paragraph of the OREA form states that “The information is being provided for information purposes only and is not a warranty”.
A warranty is a statement collateral to the contract. Breach of a warranty entitles the purchaser to damages only and does not permit the purchaser to rescind the contract. A representation is a statement made by one party to the other, before or at the time of contracting, regarding some existing fact, or some past event, which is one of the causes that induces a contract.
In Ward v. Smith (2001) 45 R.P.R. (3d) 154 the B.C. Supreme Court adopted the following descriptions of disclosure statements:
“The purpose of the disclosure statement is to raise questions and concerns rather than give detailed answers to the disclosures made.”
“Although the property condition disclosure statement forms part of the agreement for a purchase and sale, it is not necessarily a warranty. Its main purpose is to put purchasers on notice with respect to known problems. The disclosure statement … merely indicates that the statements therein are true according to the seller’s current actual knowledge.”
“The disclosure statement does not call upon a vendor to warrant a certain state of affairs. It requires the vendor to say no more than that he or she is or is not aware of problems”.
The Court also stated “Representations are non-contractual. If they are not true, the appropriate remedy is not an action for breach of contract, but the avoidance or rescission of a contract entered into in consequence of the representation, and, possibly, a tort action for damages. Thus…. a misrepresentation, may:
(a) entitle the representee to avoid the contract, if the representation was fraudulently made;
(b) entitle the representee to rescind the contract, if the representation was innocently made or;
(c) entitle the representee to sue, in tort, for damages if the representation was negligently made”.
Therefore, it is clear that the statements made in the SPIS are not a warranty, but the court will consider them a representation. Depending on whether the representation was fraudulent, innocent, or negligent will determine the remedy of the buyer. The next two cases show that sellers must be very cautious in filling out the SPIS, because the courts will not hesitate to make sellers pay for a representation that turns out to be false.
Rampersad v. Rose, [1997] O. J. No. 2012 (Ontario Small Claims Court)
This is a leaking basement case; the new owners claimed that the vendors had concealed water stains by hiding them with furniture and boxes. One interesting point; the court referred to a line of authorities that holds that even where a latent defect is concealed without the intention of deceiving a purchaser, if it actually hides the defect the concealment is treated as a fraudulent misrepresentation of a latent defect. To make the vendor liable for a latent defect, the purchaser must satisfy the Court that the vendor had knowledge of the latent defect and has concealed it or is guilty of a reckless disregard of the truth or falsity of the representations. The vendors had signed a SPIS in which they stated that they were not aware of any moisture problems in the basement. The court found that the answers to the questions were representations. The purchasers were aware of the contents of the Disclosure Statement but it was not attached to the Agreement of Purchase and Sale. This case is interesting because the Court held that the exclusionary clause (“This Agreement…shall constitute the entire agreement” – which is paragraph 24 of the OREA form of Agreement of Purchase and Sale) excluded the representations made in the Disclosure Statement (this position was overturned two years later in McQueen).
McQueen v. Kelly, [1999] O. J. No. 2481 (OSCJ)
This is another leaky basement case in which the vendors completed a Disclosure Statement confirming that they were not aware of any water or moisture problems. In fact, the vendors had stored boxes in the basement in order to conceal evidence of water damage which the court found to be fraudulent misrepresentation. The court called the purchasers foolish for not exercising their home inspection condition which was in the Agreement, but held that the vendors’ representations, coupled with the intentional concealment of the water stains, permitted the purchasers to rely upon the representations and absolved them from having to have the house inspected. The Court overruled the Rampersad case and said that the exclusionary clause did not exclude the Vendor Disclosure Statement because “to do so would nullify the legal effect of the disclosures and warranties expressly set out in the information statement. The provision in the Disclosure Statement, requiring the vendors to disclose any important changes right up to closing, indicates an intention to perpetuate the warranties in the information statement beyond the time the contract for the sale of property was signed. This protects the warranty from being terminated by provisions such as the exclusionary clause”.
DOCTRINE OF MERGER: DO REPRESENTATIONS SURVIVE CLOSING?
A full understanding of the Doctrine of Merger, can be gained by summarizing a 2002, Manitoba case; Taschereau v. Fuller 2002 MBQB 183.
The purchaser Mr. Tashereau brought an action against the vendors of a residential property which he purchased. The vendors in turn took third party proceedings against their own agent for negligence.
Here was a question contained in the Form:
“To your knowledge has there ever been any flooding or leakage affecting any portion of the property (into the house or garage or into low-lying areas of the yards or other part of the property) and from any cause or source (rainwater, snow melt, sewer backup or other cause or source)?’to which it was indicated “yes” and the following handwritten answer added: “Minor water seepage thru bsmt window during a heavy rain.”
An Offer was submitted providing that the “seller’s property condition statement would be incorporated into, and form part of, the contract”. Mr. Tashereau’s property inspector made a note about a repair to the window wells in the basement. Eleven days after the purchasers took possession, it rained and water leaked into the basement.
The plaintiffs’ position at trial was that the comment in the seller’s property condition statement that only minor water seepage had occurred through a window was inaccurate given the amount of leakage. The defendants’ position was that the comment in the seller’s property condition statement was inaccurate only as to the use of the singular rather than of the plural, and that in their experience, only minor water seepage had occurred through the windows at any time during their possession of the premises.
The case discussed the idea that once the parties have completed the transaction, the title has registered in the name of the purchasers and the purchase price has been paid to the vendors, the remedies available to an aggrieved party are severely limited.
The case set forth the doctrine of merger:
1. After closing, the doctrine of merger may apply.
2. The doctrine of merger is that, upon the completion of an agreement for the sale of land, the agreement and the parties’ rights thereunder are merged in the deed of conveyance, so that after closing they can no longer rely on the terms of the contract, but must look to the deed for any remedy.
3. The purpose of the doctrine of merger is to bring finality and certainty to business affairs, as it would be unfair to allow a party to seek to set aside the transaction or to obtain damages for an indefinite period after closing.
4. It is the general rule that the acceptance of a deed is prima facie full execution of the agreement to convey, and preliminary agreements and understandings related to the sale of land become merged in the conveyance.
5. The doctrine of merger does not apply to independent covenants or collateral stipulations in an agreement of sale.
6. Where the agreement of sale creates rights or imposes obligations or stipulations collateral to or independent of the conveyance, the question of whether those stipulations are extinguished by merger is one of intention.
7. The proper inquiry should be to determine whether the facts disclose a common intention to merge the warranty in the deed; absent proof of such intention, there is no merger.
8. The exceptions to the doctrine of merger are as follows:
(i) fraudulent misrepresentation;
(ii) mutual mistake resulting in a total failure of consideration or a deficiency in the land conveyed amounting to error in substantialibus;
(iii) a contractual condition; or
(iv) a warranty collateral to the contract which survives the closing.
The trial Judge commented as follows: “As a result, the doctrine of merger will apply to the comment unless it falls within any of the exceptions:
(a) fraudulent misrepresentation: I accept Mr. Fuller’s evidence that he did not deliberately intend to mislead. I believe that he was being truthful. He indicated that while there had been some seepage in the basement, there was nothing that he would have considered of a major issue. Furthermore, I accept his evidence that he did not deliberately attempt to mislead by the fact that the comment refers to the word “window”, and not “windows”.
(b) error in substantialibus: Even if there was an error as to the reference of a “window” as opposed to “windows”, I do not see this error as one of substance or as one that would change the substance of the subject matter of the contract. There is no indication that the vendors took steps to hide the problems caused by the water seepage. In fact, the purchasers’ home inspector noted them. While the inspector did not note the larger problem found in the wall behind the boxes, there is no indication that the boxes were laid in such a way as to prevent the wall from being viewed.
(c) contractual condition: There are no conditions in the contract that would entitle the purchasers to recover damages.
(d) collateral warranty: As I have indicated, I do not find that the representation amounted to a collateral warranty.
In summary, I find that the principle of caveat emptor does apply”.
Consequently, the purchasers case was dismissed.
CASE REVIEW
In a 2008 Ontario decision the sellers informed the buyer and realtor that there were no current problems with moisture or flooding. There was a presale inspection that failed to find any indication of water damage. After the purchase, the house sustained flooding and moisture damage to the basement. The buyer argued that seller provided untrue statements as to the condition of the house, and she would never have purchased the house otherwise. The court decided in favour of the buyer. The statements by the sellers were false, as there had been instances of flooding in the past. The sellers interpreted the question of flooding as meaning that there were no present problems as opposed to past problems. While the statements were not made with intent to deceive, they had been made negligently. The sellers were aware that there could be moisture in the house if the gutters were not kept clean and downspouts were interfered with. The Court found that, on a balance of probabilities, without the misrepresentation, the plaintiff would never have purchased the house. Costs to repair the house included the removal of water, remedial work to prevent future leaking, restoration of the basement, and other damages. Judgment was issued against the sellers in the amount of $33,874.
Stone v. Stewart, [2009] O.J. No. 1674
This was a claim by the plaintiff purchasers for $10,000 to remedy water problems encountered in the basement. The defendant, Mrs. Stewart, claimed she was not aware of problems with water, moisture or structural problems at the time of the 2007 sale. She denied any warranty, guarantee or certification and denied deliberately or recklessly concealing any such problems. Mrs. Stewart had purchased the house by herself, but it was also occupied by her husband. One of the answers on the SPIS was that the seller was not aware of any water or moisture problem in the basement. Ms. Stewart acknowledged signing the form but said her husband gave the answers by marking the available answer boxes.
The plaintiffs were awarded $8,096 in damages, including GST, plus costs. There was a serious water problem in the basement and it was more extensive than the defendants had admitted. The SPIS answer that proclaimed no awareness of any problem was, at best, less than forthright. The defendant was wilfully blind in that she seemed to have made no serious enquiries from her husband about the condition of the basement but affixed her signature to a document she could not answer seriously in truth. She had delegated the furnishing of information to Mr. Stewart and could not now hide behind the purported absence of knowledge and the delegation. The denial of awareness of a water or moisture problem in the basement was not credible. The defect was a patent one, but the painting of the basement floor shortly before the property was listed for sale amounted to a concealment of a patent defect, thus converting it to a latent defect.
Riley v. Langfield [2008] O.J. No. 2028
An Ontario court decision released in May, 2008 serves as a great example of how careful Real Estate Agents have to be in giving advice on filling out these statements.
In December 2003, the Riley’s signed an agreement to buy a home from the Langfield’s. Prior to signing the offer, the sellers completed and delivered to the buyers an SPIS. The sellers stated in the SPIS that there were no defects in any included appliances or equipment, that the fireplace was in working order, and that the sellers were not aware of any problems with the swimming pool or any moisture or water problems in the basement.
After the closing, the purchasers discovered a “flood” in the basement and some of their possessions were destroyed. They also found that the swimming pool filter and pump were not working. A public health inspector visiting a house under construction next door discovered a pipe coming from the Riley property containing raw sewage. He also discovered an abandoned well. The inspector ordered the Rileys to install a new septic system and fill in the abandoned well. Fortunately, the Rileys’ title insurance policy paid for those costs.
When the extent of their other losses became clear, the Rileys sued the Langfields for damages of $97,500, claiming misrepresentation and breach of contract.
After hearing all the evidence, the judge dismissed the claim for damages to the basement and awarded the Rileys $2,100 for the costs of repairing the pool and the gas line to the fireplace.
The most interesting part of the decision was the judge’s criticism of the realtors for each of the parties, for their lack of “any due-diligence inquiry”. He was especially critical of their failure to take action with respect to the possibility of water problems. “Realtors are expected to provide advice and direction to their clients… They are paid to act as professionals. They are not simply tour guides walking through a residence. The cavalier attitude of both realtors with respect to the SPIS is troubling. The purpose of the SPIS is not to protect realtors from liability. They have a due-diligence obligation.”
Swayze v. Robertson, [2001] O. J. No. 968 (OSCJ)
A year before the sale, the vendors had experienced leaking in the basement but had taken steps to correct the problem. They had signed a Disclosure Statement confirming that they were not currently experiencing water problems – they also stated that there was no history of cracks or water in the basement. The purchasers had a home inspection done and, even though the report stated that repairs would be required to the foundation to stop water leakage, they did not do any further investigations and completed their purchase. The court held that the vendors had made a false statement knowing it to be untrue or at least indifferent to its truth with the intention to mislead. The court could have found that because the purchasers had retained a home inspector, they were not relying upon the representations of the vendors, but the court did not find that they were so estopped. The court seems influenced by the fact that the inspection report was qualified and based upon only a visual inspection of the home. The court also rejected the vendors’ argument that the exclusionary clause nullified the legal effect of the warranties set out in the Disclosure Statement (following the McQueen case).
Gallagher v. Pettinger, [2003] O. J. No. 409 (OSCJ)
Boxes, which had allegedly hidden evidence of moisture, had been stored in the basement for several years. A professional home inspection was completed and the report, based on a visual inspection only, did remark on evidence of moisture penetration. On the Disclosure Statement the vendors indicated that the lot had flooded twice in 1987 and 1991. They also disclosed that the basement is “damp” but they otherwise indicated that they were not aware of any moisture or water problems in the basement. Eleven months after the purchase was completed, and after heavy rains, the basement flooded and the purchaser sued.
The court held that the home inspector or the purchasers could have requested that the boxes be moved in order to inspect the basement. The court also stated that the vendors had honestly completed the Disclosure Statement and that their additional remarks had put the purchasers on notice of potential flooding problems. The court was critical of the purchasers for making no further enquiries even though their home inspector advised them of the possibility of future water problems. The vendors had not negligently or recklessly made the statements in the Disclosure Statement because they were not aware of any actual problems and had given notice of the problems of which they were aware.
Most interesting is the court’s ruling that once the purchaser had retained the home inspector, any reliance on the vendor’s representations shifted to the inspector (Absent fraudulent representations or concealment).
Moore v. Page, [2002] O.J. No. 2256 (OSCJ)
This is a structural defect and water leakage case involving a house that was constructed by an engineer/vendor. The vendor signed and delivered a Disclosure Statement indicating no problems which the court held were representations/warranties which had been made recklessly with disregard for the truth. This court also held that the exclusion clause did not exclude the disclosure statement. It is interesting that the Court was not critical of the purchasers for amending their Purchase Agreement by deleting their condition (i.e. conditional upon their obtaining a satisfactory building inspection) and relying, instead, on the “representations or warranties” contained in the written Disclosure Statement.
By way of interest there is a reference to the Chamberlain v. Gener (1997) B.C. unreported case which held that there could be no reliance on the Disclosure Statement if the purchaser had not seen it.
Kaufmann v. Gibson [2007] O.J. No. 2711
This was an action by the sellers for breach of agreement of purchase and sale. The purchasers counterclaimed for rescission on basis that plaintiffs failed to provide full and complete information about true condition of premises. The plaintiffs had experienced water problems in house caused by ice damming but had restoration work completed prior to listing property for sale. In the property disclosure statement, the plaintiffs denied any knowledge of any water or moisture problems after being convinced by listing agent not to disclose water problem as only present problems had to be disclosed . The defendants incorporated the disclosure document directly into terms and conditions of agreement. They learned of water damages through their own inquiries after making offer on property, after which they rescinded the offer based on plaintiffs’ misrepresentation in the SPIS. The Sellers action was dismissed, and the counterclaim allowed. Questions in disclosure statement did not refer only to damage experienced at time of executing form. Structural questions on form called for open and plain answers that could not be limited to problems on the day form was signed. The Sellers answers on form were clearly untrue. Truthful answers were an integral part of contractual terms and failure to provide truthful answers fully justified defendants in refusing to close and asking for rescission of agreement.
Hunt v. 981577 Ontario Ltd., [2003] O. J. No. 2051 (Small Claims Court)
The Disclosure Statement was attached to the Agreement of Purchase and Sale. The vendor made a true statement that the vendor was not aware of any defects in any appliances. Prior to closing, the dishwasher stopped operating and required substantial repairs The Court held that the vendors had an ongoing obligation to disclose changes which occurred after the statements had been given.
ROLE OF THE REALTOR WHEN REPRESENTING THE BUYER
Your responsibility may not be discharged by delivering the SPIS to your client – you should consider telling the Buyer of:
• It is still “buyer beware” (caveat emptor);
• The SPIS may not be part of the contract;
• The limited utility of the SPIS as it attests only to sellers’ current knowledge about their properties and not necessarily about the state of the properties;
• The fact that there may be defects which the sellers may be unaware;
• Any apparently incorrect or questionable responses by sellers;
• The need for further inspection and inquiry by the buyer or appropriate experts;
• The need for insertion of appropriate warranties if particular attributes of the property are of concern to the client.
(Lyle v. Burdess, YK, 2008)
ROLE OF THE REALTOR WHEN REPRESENTING THE SELLER
You should consider telling the seller:
• It is still “buyer beware” (caveat emptor);
• That they are not legally obligated to complete the SPIS;
• That they may be disclosing more than required by law;
• The responsibility and importance of accuracy and completeness if they choose to complete the SPIS;
• The SPIS may be used by buyers as a basis for an action for misrepresentation negligent or otherwise;
• That completion of the SPIS does not relieve their continued duty of disclosure to buyers;
• There are significant legal consequences attached to a SPIS;
• The agent is not in a position to provide legal advice;
• The seller or buyer may first wish to discuss these consequences with a lawyer to fully appreciate them.
This is important, since:
• If you play a role in the completion of statements, exercise reasonable care and skill in ensuring their accuracy;
• Be alert for changes in, or new, information and ensure that the SPIS reflects current knowledge concerning the property;
• Investigate certain responses to questions in the statement, if there is some evidence that would put a reasonable agent on notice that the response provided is not reasonable.
(Lyle v. Burdess, YK, 2008)
CONCLUSIONS
1. At the present time for Thunder Bay MLS listed properties, signing of the SPIS in Thunder Bay is mandatory, although it may be ruled out and shown “As Is”.
3. Purchasers should always request a copy of the SPIS before signing the Agreement. Remember that if the buyer obtains a building inspection report they may be restricted to looking to the inspector (with all the qualifications and disclaimers contained in such reports) rather than relying on the SPIS.
4. There can be no reliance on the SPIS if the buyer has not seen it: (Moore).
5. If completing the SPIS, sellers must be very careful and err on the side of more disclosure than less.
6. Questions in the SPIS cannot be limited to the day the form is being signed, but must reveal all past problems.
7. The doctrine of merger will not apply when there has been fraudulent misrepresentation, mutual mistake, a contractual condition, or a warranty, collateral to the contract which survives closing.
8. Even if the purchaser obtained an inspection report, the seller may still be liable if he/she was fraudulent.
SAMPLE PRACTICE PROBLEMS
1. Your client has property that consists of a four bedroom, two bathroom house. The property is supplied with water from a well. Your client lived in the house with a family of four for ten years. This past summer, your client was required to fill the well when it dried up a few weeks before vacating the property. When the well dried up, they had four relatives from out of town staying with them for a month, meaning that eight people were using the water. Prior to your clients living in the house, a family of four lived in the house for 20 years and never had a problem with the well. This summer was an extremely dry summer, and the first time the well ever dried up. Your client insists that they do not disclose that they have ever had a problem with the quantity of water, because the well drying up was a one time occurrence, and it only happened because they had eight people living in the house at that time. What should you recommend to your client?
Form 222:
(1) (c) are you aware of any problem re: quantity of water?
2. Your client has filled out and signed the SPIS form for you. You list the property and quickly find a prospective purchaser. Shortly before the purchaser is going to see the SPIS you notice that your client has initialed ‘NO’ for “are you aware of any moisture and/or water problems?”. You think that your client had a flood when the snow melted a few years ago, but you are not positive. What should you do?
