Disclosure document is an invitation to litigation

Bob Aaron in Legal

The vast majority of residential real estate transactions close as scheduled, without problems or disputes. The chances of any given real estate deal resulting in litigation involving the buyers, sellers and real estate agents increase dramatically when the agents insist that the sellers complete a disclosure document called the Sellers Property Information Statement (SPIS).

The form is published by the Ontario Real Estate Association (OREA).

An increasing tide of court cases from across the country is evidence that the forms provide an endless source of income for litigation lawyers, and a bottomless pit of grief and expense to the parties involved in the transaction.

An Ontario Superior Court decision released earlier this year is yet another example of how dangerous these forms are and why OREA and some of its member boards should bear the blame for promoting them.

Back in 2002, Maria Lunney purchased a 90-year old Ottawa duplex for $180,000 from Jana Kuntova. The listing agent was Masoud Badre, an employee of Re/Max Metro City. The house was described in the sale listing as having a "stone, stucco" exterior with a "stone" foundation.

This type of foundation, with parging on the interior sides, was in common use until about 70 years ago, and is also known as a rubble foundation.

At the time of the listing, Kuntova – with the assistance of her agent, Badre – completed a Sellers Property Information Statement on the OREA form.

In it she stated that she was not aware of any structural problems in the basement.

Prior to the sale to Lunney, however, Kuntova had accepted an offer to purchase the property from Marque Laflamme. That purchaser had obtained a home inspection report, which indicated advanced crumbling of the rubble foundation under the rear extension of the house. Laflamme backed out of the transaction, although the seller was not told the reason for the cancellation.

At the time of her purchase in 2002, Lunney also commissioned a home inspection, but it did not reveal any defects in the foundation as the interior basement walls had been covered with drywall since the previous inspection.

A subsequent inspection undertaken for Lunney in 2005 revealed that there were serious foundation deficiencies behind the drywall, and that the property would either have to be demolished or raised to permit the construction of a new foundation under it.

The following year, Lunney sued Kuntova, Badre and Re/Max Metro-City for $300,000 in damages for misrepresentation. The co-defendants also sued each other.

The trial took place late last year over the course of five days. As a general guideline, the three lawyers involved probably spent at least another five days each in pre-trial discoveries and in preparation for trial. That comes to a total of a minimum of 30 lawyer-days, and points to a combined legal bill for everyone of something north of $100,000.

In the end, the judge found no evidence that the defendants were aware that the foundation was useless. The judge dismissed the case. Following the trial, Lunney paid court costs to the defendants, but the amounts have not been made public. As well, the losing plaintiff was responsible for her own legal bills and the foundation is still at the end of its useful life.

But for the existence of the SPIS this case may never have gone to court. The form is an invitation to litigation, and in my view agents who promote it are doing themselves and their clients a huge disservice by exposing everyone to needless litigation.

Bob McLean, director of communications at OREA, the publisher and promoter of the SPIS disclosure form, emailed me last week to say that the association had declined my request to interview a spokesperson but would shortly be providing me with a written statement about its position on the SPIS.

Bob Aaron is a sole practitioner at the law firm of Aaron & Aaron in Toronto and a 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 Saturdays in The Toronto Star and weekly on Move Smartly.  E-mail bob@aaron.ca

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