Disclosure Statement Meant Buyers Recovered Damages, but Listing Agent Escaped Liability

Bob Aaron in Legal, Home Selling

Home and Paperwork

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

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.

One question on the form was, “Are you aware of any roof leaks or
moisture or water problems or unrepaired water damage in the dwellings

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 bob@aaron.ca

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