Law Times

January 16, 2012

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Law Times • January 16, 2012 FOCUS ON Real Estate Law about the neighbouring sex offender? Case tackles tricky issue as lawyers continue debate on disclosure statement Do sellers have to tell buyers BY KENNETH JACKSON For Law Times ments in two words: potentially dangerous. Marks doesn't like them and O doesn't recommend them. Why not? He believes their ambigu- ity can open his clients to frivo- lous lawsuits. Th e seller property informa- tion statement asks 48 ques- tions. One of them, for exam- ple, asks whether the seller is aware of possible environmen- tal problems or soil contamina- tion on the property or the im- mediate area. "Well, fi rst off , what's imme- diate area?" asks Marks. "How far away is the immediate area? You may be in an aquifer that stretches several kilometres and there is contamination three blocks down and it's contami- nating the soil in your area and you don't even know about it." If the new homeowner fi nds out there's dirty soil upon mov- ing in, the sellers may be liable. Th e sellers may not have known about the problem when they checked no on the statement. Of course, there are those who argue that they might have lied, should have known about the problem or could have hired someone to fi nd out. "Th e implication is now homeowners are put in a situ- ation where they are forced to give answers regarding a prop- erty they may not have answers to," says Marks. It's not mandatory for sellers to fi ll out a seller property in- formation statement. But many lawyers say real estate agents like them and push for them, es- pecially as they can help secure deals faster and more easily. "Typically, real estate agents love them," says Marks. "Al- though it says it's not going to ttawa real estate lawyer Bruce Marks sums up seller prop- erty disclosure state- be relied upon, you are actu- ally providing a statement to someone. Why would you be providing it unless you were going to have the per- son rely upon it? If you're not going to have a person rely upon it, just don't make any statement at all." Faced with a potential sale, homeowners may feel obligated to complete a dis- closure statement only to fi nd themselves facing costly litigation later on. Toronto real estate lawyer Bob Aaron doesn't like the statements either. He keeps writing about them in his Toronto Star column. Aaron wrote in a Jan. 22, 2011, column that there have been 49 reported court deci- sions resulting from the use of the statements in Ontario since their introduction in the 1990s and a further 153 matters from the other provinces and territo- ries in Canada. Th at gives a total of 202 cases. "I cannot think of any other single document which has ac- counted for so much litigation in the same time period," he wrote. "Why real estate associations across the country continue to foist these dangerous disclosure forms on their clients continues to amaze me," he added. Aaron wasn't done. He wrote about the issue again in No- vember. He noted the property disclosure statements remain a hot topic in the real estate community with an even split among those who are for and against them. Manitoba's move to mandate them for every sale has only added to the debate. Aaron not- ed Britain has reversed its deci- sion to require them with every transaction. "Th e major diff erence be- tween the disclosure form created by the Manitoba Real Estate Association and the On- tario Real Estate Association property unless deceit or misrepresentation was in- volved," Elliott explained in an October newsletter. "Th is principle requires Bruce Marks believes the ambiguity of disclosure statements can cause problems. version is their length and com- plexity," he said. "Th e Manitoba form has 19 questions, the basic Ontario form has 48. I am a devout opponent of these forms, but given a choice, I would take the Manitoba form any day." Th e questions in the On- tario statement can raise more issues. For instance, do sellers have to tell the buyers about a sex off ender who lives across the street? Th ere's no question about that on the form, but do the sellers have to tell them any- way? What if they don't know? Th ey may have an obliga- tion. At least, that's what a judge has said. In the case, Jason Dennis and Rebecca Bound bought a home in Bracebridge, Ont., from William and Helen Gray. But before they moved in, they learned a neighbour had been found guilty of possession of child pornography a decade earlier. Th e buyers have two young children and claim they had to sell the property at a loss. Th ey then launched a lawsuit against the sellers. Th ey allege in their lawsuit that the entire neighbourhood, including the sellers, knew Get more online Canadian Lawyer | Law Times | 4Students | InHouse | Legal Feeds • Visit Us Online 1-8-5X.indd 1 2/28/11 2:37:34 PM Fresh Canadian legal news and analysis every day about the neighbour. Th ey claim it's something the sellers should have told them about prior to the purchase. But even if the sellers did know about the neighbour, which they deny, they allege they wouldn't have an obliga- tion to disclose the information because it doesn't qualify as a defect in the home. In March, the sellers asked the Superior Court to toss out the application. But the judge didn't agree to dismiss the claim and allowed it to proceed. Th e main legal issue referred to in this case is the principle in real estate law known as caveat emptor, or buyer beware, ac- cording to Barrie, Ont., lawyer Shari Elliott. Elliott notes the case in- volves common law defences. Th e buyers are saying they should have been told, while the sellers are saying they had no obligation and it's up to the purchasers to do their research, she says. "Th is principle indicates that if the buyer of a property fails to complete a reasonable inspection, he/she cannot later complain about defects which are inconsistent with the way the sellers have represented the sellers to disclose latent (hid- den) defects that could ren- der a property unfi t for habi- tation; however, the onus is on the buyer to conduct a reasonable inspection of the property. Th erefore, the sellers are not required to disclose information that a reasonable home inspection would reveal." Elliott doesn't believe cases like this come down to how sellers fi ll out the forms or if they fi ll them out at all. "In my opinion, whether one exists, whether you sign it or whether you don't sign it, the seller information form isn't the story. Th e story is what is the agent required to do? What is their standard of care?" she says, pointing to the recent case of Krawchuk v. Scherbak. Th e case began in 2004 when Zoriana Krawchuk, a fi rst-time homebuyer, purchased a house in Sudbury, Ont., that had seri- ous foundation problems. Th e house was sinking and sub- sequent plumbing problems caused the sewers to back up throughout the year. Th e agent who sold the home represented both sides. Th e new homeowner sued both the sellers, Timothy and Cherese Scherbak, and the agent, Wendy Weddell, for damages. Th e courts found the sellers liable for $110,000 for negligent misrepresentation. Th e agent had helped the vendors with completing the disclsoure statement. When asked if there were structural problems, they responded that the northwest corner had set- tled 17 years earlier. "Are you aware of any prob- lems with the plumbing sys- tem?" they were asked. Th eir See Agents, page 10 PAGE 9

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