Is there a legal obligation for a seller to disclose pre-closing flood damage to the buyer?

Bob Aaron in Legal, Home Selling, Home Buying


Does the seller of a house have a legal obligation to advise the buyers about a flood that occurred after the parties entered into an agreement of purchase and sale but prior to closing? Can sellers be sued for misrepresentation if they sign a Seller Property Information Statement?

These are the central issues in the case of Soboczynski v. Beauchamp, which has now been through three court hearings and may be headed to the Supreme Court of Canada.

Back in 2007, Don and Louise Beauchamp decided to sell their property on Gardenvale Cr., in London, Ont. After inspecting the property, Adam and Olga Soboczynski submitted an offer to buy it for $290,000. The offer was accepted.

Before the conditions in the agreement were waived, the sellers delivered to the buyers a Seller Property Information Statement (SPIS) on a standard industry form which was provided to them by their realtor.

On the SPIS, the sellers stated that the property was not subject to flooding and that they would disclose any “important changes” to the buyers before closing.

The basement flooded before closing. The sellers dried out the wet rug and replaced the underpad at nominal cost, but did not disclose the flood to the buyers.

The basement flooded again after closing and the buyers sued the sellers for damages of $25,000 based on the representations in the SPIS.

Following the trial in November, 2011, the judge ruled there was no misrepresentation. The pre-closing flood did not have to be disclosed and the judge dismissed the case.

The buyers appealed to the Ontario Divisional Court which reversed the trial decision. The Court awarded them $25,000 in damages based on what it said was a negligent misrepresentation in the SPIS.

A further appeal by the defendant sellers was heard by the Ontario Court of Appeal last November. In April, 2015, a three-judge panel reversed the decision of the Divisional Court and restored the decision of the trial judge. The appeal court ruled that the pre-closing flood did not amount to substantial damage which required disclosure, and the SPIS statements did not constitute negligent misrepresentation.

Last month, London lawyer Erin McDermid filed an application to have the buyers’ appeal heard by the Supreme Court of Canada. Appeals of Small Claims Court decisions rarely make it to the highest court in the land, but this one might.

At McDermid’s request, and without taking sides in the case, I filed an affidavit stating that the SPIS form has been the subject of about 230 court decisions since 1997, with decisions going in different directions.

The courts, I said, agree that the use of the SPIS form is contentious and unsettled. Given the litigation spawned by the form, and the general uncertainty on whether or not the form is binding and enforceable, I am hoping that the Supreme Court will finally put the issues to rest — one way or the other.

Stay tuned.

Bob Aaron is Toronto real estate lawyer. His Title Page column appears on this blog, Move Smartly, and in The Toronto Star. You can follow Bob on Twitter @bobaaron2 and at his website Email Bob

Buying     |     Legal     |     Selling     |    

Toronto’s most authoritative real estate insights, delivered right to your inbox.