An Ontario court decision released last month serves as a
potent reminder of the dangers of using a Seller Property Information
Statement (SPIS) when selling real estate.
In December 2003, Paul and Judith Riley signed an agreement to buy a home in Tavistock from John and Kimberley Langfield.
Prior to signing the offer, the sellers completed and delivered to the buyers an SPIS on a standard real estate board form.
The
form, in wide use throughout parts of Ontario, 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.
In
the Tavistock transaction, 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 in April 2004, the
purchasers discovered a "flood" in the basement and some of their
possessions were destroyed or damaged by the water. They also found
that the swimming pool filter and pump were not working.
That
summer, 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.
he 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. The trial
took place in February in Kitchener before Justice Donald J. Gordon.
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. Legal costs for the lawyers
on both sides for the five-day trial could easily have reached
$100,000.
The most interesting part of the judge's decision is
his criticism of the realtors for each of the parties, for their lack
of "any due-diligence inquiry" and especially their failure to take
action with respect to the possibility of water problems.
"Realtors
are expected to provide advice and direction to their clients," the
judge wrote. "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."
Lawrence Bremner practises real estate
law at Gowlings in Hamilton and is an authority on the use of the SPIS
form in Ontario. He is also a director of the Real Estate Council of
Ontario, the governing body of Ontario real estate agents.
Bremner
emailed me last week to say that the SPIS forms "are used in most of
Ontario, in part, to protect agents – but they fail miserably in that
regard.
"They are litigious," Bremner wrote, "as they ask
simple questions that require complex answers and ask questions that
many lay people don't understand and they ask sellers to disclose more
than they are required to do.
"The simple fact is that if the
seller gets sued, then the agent and the broker will be joined in the
action" for their role in using the forms.
I've said it before,
if your agent insists on an SPIS, get another agent or hire a good
litigation lawyer. Based on the flood of new cases involving the use of
the SPIS, chances are increasingly good that you'll wind up in court.
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
