A Saskatoon real estate agent and his brokerage have escaped liability to the purchasers of a home with a wet basement in a misrepresentation lawsuit. Although they recovered their damages from the sellers, the unhappy buyers were ordered to pay the agent’s costs out of their own pocket.
Back in 2007, Carol and Donald Jacobucci bought a house in an upscale Saskatoon neighbourhood from Marleen and Patrick Prediger. The agreement of purchase and sale made it a condition of the deal that the sellers complete and deliver a Property Condition Disclosure Statement (PCDS), known in Ontario as a Seller Property Information Statement (SPIS).
The Predigers purchased the house in 2000 and lived in it until its sale to the Jacobuccis in 2007. The Saskatoon real estate market was very active when the property was listed for sale; the sellers’ real estate agent described it as “chaotic,” and one where offers above asking price were common.
At the time the house was listed, the Predigers signed a PCDS at the request of their agent. It was a standard form in use at the time, although it was revised the following year. Unlike in Ontario, the form was mandatory for real estate agents to use.
The Predigers answered no to this question.
Another crucial question was, “Are you aware of any past or present flooding or drainage problems on the property?”
To this the sellers answered yes, and added a comment reading, “July 2005 storm, slight seepage installed 2nd sump pump no trouble since.”
When the Iacobuccis took possession of the house in November 2007, they hired a carpet cleaner who discovered water problems and a bad smell. Water was found underneath the carpet in most of the basement, and some of the adjacent walls were wet, mouldy and smelly. It was clear that water was entering the basement through the concrete floor.
Eventually the basement carpet and all of the interior walls of the basement were removed. The wallboard, vapour barrier, insulation and some of the electrical installations had to be discarded. Due to the mould, the buyers moved out until the property was remediated.
The buyers sued the sellers and the listing agent last year, and the court’s decision was released in August.
Based largely on the evidence of the sellers’ real estate agent, Justice J. Duane Koch concluded that the water issue had to be treated in law as a hidden, or latent, defect. During that agent’s inspections of the property, he did not notice any water problems in the basement, but, the judge noted, “it was not his job to be a wet basement detective. He was entitled to take the Predigers’ PCDS at face value.”
The judge concluded that the Predigers had made conscious efforts to conceal or at least minimize the extent of the damage “to the point of wilful deception.” They used at least one air freshener, without which the basement had a very strong smell.
Justice Koch was unable to accept Patrick Prediger’s testimony that there was no evidence of moisture when he moved out.
The court found the Predigers liable to the Jacobuccis for several specific misrepresentations and ordered them to pay damages to the Jacobuccis of $92,162 plus costs. The Jacobuccis, however, were ordered to pay costs of the sellers’ real estate agents, as there was “no reasonable basis to proceed against them.”
This case seems to establish a low threshold for an agent’s duty to purchasers when using the disclosure form, at least in Saskatchewan.
In reaching his decision, Justice Koch also quoted a 2003 decision of the chief justice of Manitoba, who wrote, “Based on the experience of those provinces that have employed the PCS, it seems to present a ripe ground for litigation.”
The judge was correct. Without the presence of the disclosure form in this case, there would likely not have been a lawsuit.
Bob Aaron is a sole practitioner at the law firm of Aaron & Aaron in Toronto and a past board member of the Tarion Warranty Corp. Bob specializes in the areas of real estate, corporate and commercial law, estates and wills and landlord/tenant law. His Title Page column appears alternate Saturdays in The Toronto Star and alternate weeks on Move Smartly. E-mail firstname.lastname@example.org