Seller Property Information Statement ~ Boychuk and Bulter

(Ontario Real Estate Source)


By Brian Madigan LL.B.


SPIS ~ Boychuk and Butler

This is another case involving the improper completion of a Property Condition Disclosure Statement and the remedies that are available afterwards. This document is similar to the Seller Property Information Statement used in Ontario.

This case was determined in the Small Claims Court of Nova Scotia February 2007.

The Boychuks entered into an agreement of purchase and sale to acquire a residence owned and occupied by the Butlers in Dartmouth. It should be noted that Mrs. Butler was a licensed real estate agent and acted for herself and her husband in connection with the sale.

The agreement contained the following provision:

"3(b) This agreement is subject to the Seller providing to the Buyer within 24 hours of the acceptance of this offer, a current Property Condition Disclosure Statement, and that statement meeting with the Buyer's satisfaction. The Buyer shall be deemed to be satisfied with the statement unless the Seller or the Seller's agent is notified to the contrary, in writing, on or before (date) Jan 30/06. The Seller warrants it to be complete and current, to the best of their knowledge, as of the date of acceptance of this agreement, and further agrees to advise the Buyer of any changes that occur in the condition of the property prior to the closing date. If notice to the contrary is received, then either party shall be at liberty to terminate this contract. Once received and accepted, the Property Condition Disclosure statement shall form part of this Agreement of Purchase and Sale."

A Property Condition Disclosure Statement dated January 8, 2006, was completed by the Sellers and was provided to the Buyers as required under the terms of the agreement.

The home had been purchased by the Sellers in July 2002. In 2003, they experienced dampness in their yard. They contacted Ralph Crowell, who is a local installer of septic fields and septic tanks. Subsequently, they contacted two other contractors. Remedial work to the septic system was undertaken in both 2003 and 2005.

The agreement and closing took place during the winter conditions of 2006 (30 March), so the septic system could not be properly inspected at that time. By the summer of 2006, a contractor reported that there was a complete system failure and the septic system required replacement.

The Court looked at the issue of negligent mispresentation. There is a five part test before a claimant will be successful:

(1) there must be a duty of care based on a "special relationship"
between the representor and the representee;

(2) the representation in question must be untrue, inaccurate, or misleading;

(3) the representor must have acted negligently in making said misrepresentations;

(4) the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and

(5) the reliance must have been detrimental to the representee in the sense that damages resulted.

There is a review and analysis of the facts and the law in the Judgment:

"(76) According to paragraph 3(b) of the Agreement in this case, the Property Condition Disclosure Statement forms part of same once received and accepted.

(77) Applying the five part test .... I find firstly that there is a duty of care based upon the relationship between the parties.

(78) The next issue is whether the Sellers made to the Buyers a representation that is untrue, inaccurate or misleading.

(79) The Sellers rely upon the fact that the Property Disclosure Statement contains additional comments at paragraph 11 as previously noted. In fact paragraph 11 does contain a statement that french drains had been installed around the rear of the property in the summer of 2004 and spring of 2005.

(80) From their perspective, however, the Buyers submit that the provisions of the Property Condition Disclosure Statement relating to the septic disposal system note no previous problems with the existing system or upgrades having been carried out to the system in the last five years. In addition, paragraph 5 of Addendum Form 101, Schedule 4, contains a specific statement that the Seller warrants "to the best of their knowledge" that the septic disposal system is in good working order and has not presented any problems during their ownership and this warranty explicitly is stated to survive the closing.

(81) On the whole, I find the statements in the Property Condition Disclosure Statement to be misleading to potential purchasers. Anne Butler is a licensed Real Estate Agent. Despite her lack of personal experience with septic waste disposal systems, she clearly was aware that the water and drainage problems they were having were related to the septic field.... The drainage repairs were undertaken by them as a means of attempting to fix the issues they were having with their septic system. No explanation was given concerning why the information about the french drains was noted under additional comments in the area of "Structural" in the Property Condition Disclosure Statement. Paragraph 6A. and B. specifically refer to structural problems, unrepaired damage or leakage in the foundation, roof or walls and make no reference to problems with the septic system.


(82) The third step of the test is to determine whether the representor acted negligently in making the representation. I do conclude that the Vendors were negligent in making such representations in the manner in which they were made. It would be expected of a Vendor in this case, and even more so where Ms. Butler is a licensed Real Estate Agent, to note the drainage repairs in the area in the Property Condition Disclosure Statement concerning "Sewage Disposal" which would alert potential purchasers to possible problems with the system, such that they would inquire further. To include this information in the area of "Structural" would imply to a potential purchaser that the repairs were undertaken to deal with a problem of leakage in the foundation, roof or walls of the house. They would not be alerted to the possible problems with the septic system which the Sellers in this case were fully aware of.

(83) I find in this case that the Sellers were at the very least careless when preparing the Property Condition Disclosure Statement by failing to connect the drainage repairs to possible problems with the septic system.

(84) ....... to place this information under the "Structural" section of the Property Condition Disclosure Statement could easily mislead a potential purchaser into believing that the aforesaid repairs concerned structural issues with the foundation, roof or walls. This was particularly important in this case as the Sellers had in fact undertaken major structural repairs, including replacement of leaking windows before listing the property for sale.

(85) In reaching my conclusions on this point, I have also taken into consideration that a failure to provide information may constitute a misrepresentation as much as a positive misstatement.

(86) The fourth step of the test is whether the Buyers in this case relied in a reasonable manner upon the negligent misrepresentation. Once again, I have no hesitation in finding that this is the case. A buyer would reasonably conclude from the way that the Property Condition Disclosure Statement was prepared that the installation of the french drains was to deal with structural issues not possible problems with the sewage disposal or septic system.

(87) Step five of the test is clearly proven as the Buyers discovered that the system had failed entirely shortly after the snow melted from the ground."

The trial Judge allowed the purchasers' claim for the cost of the replacement of the septic system, but reduced the amount of the damages by 50% by reason of betterment.

COMMENT:

This case again points out the difficulties with the completion of the form. Here, one of the vendors was a real estate agent and was therefore held to a higher standard than might otherwise have been the case. While there was no real attempt to deceive, the document was filled out carelessly.

It should be observed that in this particular case the Property Condition Disclosure Statement (PCDS) was elevated to form part of the contractual terms of the agreement itself.

The test of correctness of the answers was measured from the purchasers' perspective. What would a normal purchaser think, given the responses. The Court did not consider whether the answers might be good responses from a technical point of view on the part of the vendors.

It should also be noted that the vendor, being a real estate agent was held to a higher standard.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Seller Property Information Statement (SPIS) ~ Sask and Brooke

(Ontario Real Estate Source)

By Brian Madigan LL.B.

This was a case heard in the Supreme Court of British Columbia and it involved the Property Condition Disclosure Statement, which is similar to Ontario’s Seller Property Information Statement.

Briefly, the plaintiff as purchaser acquired a condominium unit for $133,000 but the unit leaked, as did others in the complex. Obviously, this problem had become well known in Vancouver. No one wants to buy, particularly with so many others available. The value had dropped to $22,000 and the purchaser, Sask faces a special assessment of $60,000 for her share of common ownership repairs.

In a nutshell, this is a mess!

Naturally, the condominium owners are suing the builder but that will take time. In this case, Sask claims that the vendors made false or negligent representations in the Property Condition Disclosure Statement (PCDS).

The trial Judge expressed the issues in the case as the following questions:

1. Did Michael Brooke and Ursula Wenzel misrepresent the condition of their condominium at the time of sale?

2. Was Shirley Sask induced to purchase the condominium by those misrepresentations?

3. What damages has Shirley Sask suffered?

The agreement of purchase and sale included several conditions including financing, perusal of the strata council minutes and the sellers' Property Condition Disclosure Statement.

In many cases, the PCDS is made to form part of the agreement by attching it to the agreement as a Schedule or Addendum. Here, it was simply a condition.

The sellers answered "No" to the following questions:

H. Are you aware of any structural problems with the premises or other buildings on the property?

K. Are you aware of any damage due to wind, fire, water?

M. Are you aware of any roof leakage or unrepaired damage?

The preamble to the document is worth noting, according to the trial Judge:

"THE SELLERS ARE RESPONSIBLE FOR THE ACCURACY OF THE ANSWERS ON THIS DISCLOSURE STATEMENT AND WHERE UNCERTAIN SHOULD REPLY "DO NOT KNOW". THIS DISCLOSURE STATEMENT CONSTITUTES A REPRESENTATION UNDER ANY CONTRACT OF PURCHASE AND SALE IF SO AGREED IN WRITING BY THE SELLERS AND BUYERS."

In addition, there is a statement that appears in the document above the seller's signature:

"The sellers state that the above information is true, based on the sellers' current actual knowledge as of the above date. Any important changes to this information made known to the sellers will be disclosed by sellers to buyers prior to closing. The sellers acknowledge receipt of a copy of this disclosure statement and agree that a copy may be given to prospective buyers."

Further, just above the buyers' signature on the same document is the following disclaimer:

"The buyers acknowledge that they have received and read a signed copy of this disclosure statement from the sellers or the sellers' agent on the 24th day of February, 1997. The prudent buyers will use this disclosure statement as the starting point for their own inquiries. The buyers are urged to carefully inspect the property and, if desired, to have the property inspected by an inspection service of their choice."

The Judge in analysing this case said that "The more important questions concern the extent to which the sellers represented the condition of the property and the extent to which Shirley Sask relied upon their representations.

A copy of the disclosure statement, dated February 17, 1997, was given to Shirley Sask before she signed the contract of purchase and sale on February 24th, and the sale was subject to Sask "perusing & approving" the strata council's minutes, bylaws, and financial statements.

Sask has not proved reliance upon the disclosure statement in isolation from the strata council minutes which were provided to her at the time of sale. Sask has failed to prove that the sellers intended to mislead her in any way, particularly when the disclosure statement is read in conjunction with the strata council minutes.

It should be noted that the strata council minutes detailed the problems and expenditures of the condominium in respect to the premises.

The tort of negligent misrepresentation is now an established principle of Canadian law: Queen v. Cognos Inc. (1993), 99 D.L.R.(4th) 626 (S.C.C.). Five requirements must be met:

(1) there must be a duty of care based on a "special relationship" between the representor and the representee;

(2) the representation in question must be untrue, inaccurate, or misleading;

(3) the representor must have acted negligently in making said misrepresentation;

(4) the representee must have relied, in a reasonable manner, on the said negligent misrepresentation;

(5) the reliance must have been detrimental to the representee in the sense that damages resulted.

In this case, the first three requirements were met including negligence on the part of the sellers in making the statements.

The trial Judge stated:

"However, whether or not the sellers were negligent in purporting to confine their representations to the condition of their own unit is not, in my view, determinative of this claim. In light of their concurrent provision of minutes from strata council meetings where leakage problems were discussed, the sellers' disclosure obligations were fulfilled in a manner that should have alerted a prudent purchaser to the need to make further inquiries."

And further commented:

"In my view, the fourth requirement of the mentioned test in Queen v. Cognos Inc. has not been met, as I cannot conclude that Shirley Sask acted in a reasonable manner by relying upon the property condition disclosure statement without reference to the information provided in the strata council minutes. The sale was subject to a condition precedent that contemplated perusal and approval of the strata council's minutes, bylaws and financial statements, and in complying with that condition the sellers were effectively providing Shirley Sask with the history of water leakage problems in the complex. In light of her opportunity to review those documents, Ms. Sask had the right to refuse to close the transaction as a consequence of that information, but chose not to do so.

On the whole of the evidence, it has not been proven that the sellers misrepresented the condition of unit #206, and the claim is dismissed".

COMMENT:

So, this is an interesting case. The sellers made a misrepresentation. That misrepresentation was made negligently, but the Judge concluded that all in all, the purchaser did not rely on that the document that contained the errors.

There was ample opportunity for the purchaser to find out the correct facts from the strata council minutes. As a result, there was no liability on the part of the vendors. However, rather than being saved by the signing of the Property Condition Disclosure Statement, they were in fact saved because there was a condition in the agreement permitting the purchaser to peruse the strata council minutes, and the correct information could be found there. The mere fact that the Purchaser failed to look, is her fault, and does not establish liability on the part of the vendors.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com