If there ever was any doubt about the risks to sellers and real estate agents of using the Seller Property Information Statement (SPIS), a decision of the Ontario Court of Appeal earlier this month would seem to have put them to rest once and for all.
In the case of Krawchuk v. Scherbak, the court of appeal reversed the trial decision and held the real estate agent and her employer equally liable with the sellers for negligent misstatement in filling out the form.
Back in 2004, Timothy and Cherese Scherbak listed their property in Sudbury with Wendy Weddell and Re/Max Sudbury Inc.
After Zoriana Krawchuk bought the house for $110,100, she discovered that the foundation walls were sinking into the ground, resulting in the failure of proper support for the floor joists and building above.
Correcting the problem required lifting the home from its foundations, replacing the foundations and moving the house back to its original position — at a cost of almost double what the house and land cost in the first place.
Krawchuk sued the sellers, the agent and Re/Max Sudbury for misrepresentation in failing to disclose the hidden defects. A significant component of the Krawchuk claim was based on the SPIS form completed by the sellers.
The form is intended to protect sellers by disclosing correct information about the property to buyers.
The trial judge found the Scherbaks liable for negligent misrepresentation and awarded Krawchuk damages of $110,000 in addition to the $105,000 she had recovered from her title insurer. He dismissed her claims against the real estate agent and broker.
The Scherbaks appealed the judgment against them and Krawchuk cross-appealed the dismissal of her claim against the real estate agent.
A three-judge panel of the court of appeal heard arguments last October and released its decision on May 6.
The court’s ruling noted that the “issue of primary importance” in the case was “the duty of a real estate agent to verify information provided by the vendor about the property.”
Writing for the appeal court, Justice Gloria Epstein upheld the judgment against the sellers, but also made the real estate agent equally liable for “egregious lapses” during her representation of both purchaser and vendors.
On the SPIS form signed by the Scherbaks, the question “Are you aware of any structural problems?” was answered: “NW corner settled to the best of our knowledge the house has settled. No further problems in 17 years.”
The court wrote that the agent ought to have inquired further into the sellers’ incomplete disclosure that the foundation issues had been resolved years earlier. Failing that, she should have urged the buyer to hire a home inspector or make the offer conditional on an inspection.
Having failed to protect the buyer made the real estate agent equally liable with the sellers for damages.
The court awarded half of the $110,000 in damages against the sellers and half against the real estate agent. In addition, the buyer was awarded $25,000 in costs of the appeal against the sellers and a further $25,000 in costs against the real estate agent.
The costs of the 12-day trial have not yet been resolved by the parties, but could easily range into the hundreds of thousands of dollars for all parties involved.
Although the outcome of this case may be viewed as being restricted to its particular facts, and it did not create any new duties of real estate agents, it does emphasize how easily an experienced real estate agent can be held responsible in damages for failing to verify a seller’s statements on the SPIS form.
In her written decision, Epstein endorsed comments in earlier cases about the SPIS form, including one that said use of the form “seems to present a ground ripe for litigation,” and another which said that the case should be taken as a warning about the routine use of the form.
Clearly, agents and sellers who continue to use the SPIS do so at their own peril.
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 firstname.lastname@example.org