A recent leaky basement court case from the Ontario Superior Court in Thunder Bay is the latest in what might be called a flood of litigation resulting from the use of the Seller Property Information Statement (SPIS) by Ontario real estate agents.
Rhonda Usenik is a young public health nurse who wanted to buy a low maintenance house in Thunder Bay, back in May 2004. When she found one she liked, she read the SPIS form that the vendors had prepared at the request of their real estate agent.
In answer to the question, "Is the property subject to flooding," the sellers, Michael and Donna Sidorowicz, answered "no." They also answered no to the question, "Are you aware of any moisture and/or water problems?"
Their answers to those questions resulted in almost three years of costly litigation when Usenik sued them for deceit or, alternatively, negligent misrepresentation.
Pre-sale inspections of the house by the purchaser, her own agent, her boyfriend and her home inspector, failed to disclose any water problems. But shortly after she took possession, Usenik became aware of water leaking into the basement. The drywall began to blister, and mould was discovered growing behind the baseboard.
At trial, the evidence revealed that the vendors told their real estate agent that there had been some water in the basement a number of years previously, but that they had fixed the problem. They said that the agent advised them that since the problem had been fixed, there was no need to mention it.
It turns out that this was the wrong answer.
Usenik obtained quotes totalling $47,040 for repairs and sued for these costs, as well as other damages for loss of rental income from the basement tenant, and loss in value of the house due to the leaky basement.
The lawsuit was not based on a breach of the agreement of purchase and sale. Instead, it was framed as a case of damages resulting from the sellers' misrepresentation or deceit.
The trial took place before Justice John Wright in Thunder Bay last year, and the judgment was released in February 2008.
After hearing evidence for six days, the judge decided that either or both of the disputed SPIS statements were false.
The vendors and, apparently, their agent, interpreted the SPIS question to mean "Is the property NOW subject to flooding?"
But the truth of the matter, the judge reasoned, was the while it may not "now" be subject to flooding, it was subject to flooding ? in other words, "it was liable or exposed or prone to flooding."
Wright also held that the statements were made negligently, that the purchaser relied on the misrepresentation, and that but for the misrepresentation, the purchaser would not have bought the house.
Damages of $33,874.33, plus GST on part of that amount, were assessed against the vendors. Included in the award was the sum of $2,000 for aggravation.
In addition, the buyers were awarded about $20,000 in court costs against the sellers.
For home sellers, the prime lesson to be learned from the case is never - ever - sign an SPIS form. The problem is that the form currently in use in Ontario is far too complex and misleading for lay people - and many real estate agents - to understand and complete properly.
The sellers' agent in the case was added to the litigation as a third party defendant, and did not escape liability. Just before trial a settlement was reached in the third party action which saw the agent making a contribution to the sellers' damages.
This case may well be the beginning of a - pardon the expression - flood of actions against agents across Ontario who will be sued, or disciplined professionally, for instructing their clients to sign this very dangerous form.
Bob Aaron is a sole practitioner at the law firm of Aaron & Aaron in Toronto. Bob specializes in the areas of real estate, corporate and commercial law, estates and wills and landlord/tenant law. His Title Page column appears Saturdays in The Toronto Star and weekly on Move Smartly. E-mail bob@aaron.ca
Of course this is too bad the way things worked out, really for everyone involved. I'm sure the buyer would have preferred to not have the water problem, and of course the sellers would not as well.
When reading the facts of the case, as described at least, the first thing that jumped to my mind in paragraph six before reading any further was the agent should have told the sellers to note on the SPIS the former water problem, so the buyers would be aware there used to be a problem, and that it has been addressed, but it is up to the buyers to verify the current status of the fix. This way the potential issue would have been disclosed and all of the legal proceedings most likely avoided.
Personally I try to use the SPIS with all my listings (in certain cases like a Power of Sale it can be difficult/impossible to use) because it ensures the sellers consider all the elements that are on the form and creates a conversation around them for the agent to note and become aware of so he/she can accurately represent the property. I always tell my sellers that if they are aware of any issues, or of any previous issues that they believe were fixed (especially around water issues and any of the house systems - plumbing, heating, electrical), then a note should be included on the form to that effect. Today is a world of "full disclosure", not "buyer beware". Saying nothing about a known problem with the home, and letting the buyer discover it during an inspection, or not, is not the future way to do business in this industry. Staying silent about a problem that they believe was fixed just opens the seller up for liability should the problem arise again, like it did in this case.
I had a similar situation with a property I represented the buyers on this spring, but we did not need to go to court to obtain satisfaction. The seller patched a roof leak a few months prior to selling, and believed he had it fixed since no leaks appeared afterward. Two days after closing, with the spring thunder storms we had, the leak re-occurred. As the buyer agent, I went back and we negotiated a settlement with the seller, once it was explained to him and his agent (by me, by my sellers and by the buyer's own lawyer) that he and his agent should have disclosed this known "former" problem. The seller's agent admitted that he had advised (similar to the case Bob writes about here) the seller not to disclose this fix during the sale process. I assume they each shared in ponying up the dollars for the settlement. There was no SPIS in this case.
Perhaps there should be a conversation around how to improve the form, instead of saying it should not be used. There are questions I would like reworded and clarified, and I provide that feedback to OREA.
I believe if used correctly, the SPIS can serve a positive function in the selling-buying process.
Thoughts?
George
Posted by: George O'Neill | July 31, 2008 at 02:34 AM