Brian's Ontario Real Estate Blog

Lawyers' Opposition to Title Insurance

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Tue, 24 Nov 2009 19:19:33 -0600

Lawyers' Opposition to Title Insurance

By Brian Madigan LL.B.

For years, lawyers were strongly opposed to title insurance. In common law jurisdictions, the normal conveyancing practice was to obtain a title opinion.

Sure, you could buy a property yourself and accept all associated risks, but, if you wanted a mortgage, you had to obtain a title opinion from a solicitor. That was standard mortgage practice.

That basically left most buyers without a choice: a title opinion or nothing. In addition, the solicitor would provide a number of ancillary services in connection with the transaction.

Gradually, in the United States title insurance replaced legal opinions, and title companies replaced lawyers in the conveyancing transaction. The two went hand in hand.

In the mid 1990's the issue became quite topical in Ontario. The lawyers banded together to prevent title insurance from getting much of a foothold. Numerous arguments were presented pointing out the shortcomings of the insurance model generally, and title insurance policies in particular.

Eventually, the Law Society of Upper Canada, the governing body for solicitors developed its own title insurance policy. An additional provision was added: if you bought the policy, you could not sue your lawyer. This seemed to be the missing ingredient. Lawyers rapidly adopted the new system, since they were protected as well.

Furthermore, they were still involved in the conveyancing transaction, and in large measure this kept the title companies at bay.

By 1997, title insurance had become the norm. It was acceptable mortage practice. Policies are now sold through "agents", being the lawyers themselves. Policies are available from a number of different insurers, and policy provisions vary from company to company. While there is a standard automobile policy, there is no standard title insurance policy. It is important to cover the risks that you want covered and secure the appropriate conditions.

There are still a few holdouts in the legal community, however, they are now few and far between.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Illegal Basement Apartments in Ontario

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Mon, 23 Nov 2009 20:24:59 -0600

Illegal Basement Apartments in Ontario

By Brian Madigan LL.B.

So, you would like to have someone help you with your mortgage payments? Who wouldn't! That seems reasonable. But, be aware of the risky proposition of renting out an illegal basement apartment.

There are literally thousands of houses available in the area right now with basement apartments, so finding one should not be that difficult. Right? No, absolutely wrong! In fact, most are illegal, so your chances of finding a legal unit is just like finding the proverbial needle in a haystack.

What difference does it make? If you rent an illegal apartment to a tenant and the municipality requires you to close it down, you will have some problems. You have to terminate the tenancy. This is your fault, and you will be liable for the Tenant's moving costs, out-of-pocket expenses and the difference between what they paid to rent your unit, and what it will cost them to rent another (this time, legal) apartment. You may be charged by the municipality under the by-law and be obligated to defend yourself in Court. You will be ordered by the Court to complete the necessary repairs in order to convert the property back to a single-family dwelling.

Why does the municipality care? In an area where the municipality has expected 5,000 residents to live, there will be an infrastructure to accommodate 5,000 residents of various ages, including roads, schools, parks, and parking spaces on the street. If suddenly, that neighbourhood grows in size to 9,000 residents through a proliferation of basement apartments there will be a serious impact upon the community.

Just what is a basement apartment? The necessary features include:

1) a distinct and separate, self-contained living unit,

2) a kitchen, or a place to prepare meals,

3) a bedroom or sleeping accommodation, and

4) a bathroom.

Certainly, if it has all four features, then it is an accessory apartment. However, in many circumstances these features may be combined, and it will still be caught by the accessory apartment rules.

Why all the confusion with basement apartments and what makes them legal? In 1994, the NDP Government, then in power, passed legislation to provide that additional units (called accessory apartments) in houses were permitted as a matter of right. As a result, anyone anywhere in Ontario could create a second unit in their house. It didn't matter what the local by-laws said; this legislation prevailed. About two years later, this Act was repealed by the Conservative government.

Municipalities were again given the right to decide where these accessory apartments could be located. However, one of the most important provisions stated that all apartments that were created under the old legislation were still legal as long as they met the requirements of the Fire Code. And later, there was another change in the law to the effect that the second unit was legal only if it complied with the appropriate zoning by-law. So, the laws concerning this matter are quite complex. The application to particular circumstances is difficult, and it is almost next to impossible to determine the legal status of a second unit at the appropriate times.

Certain municipalities have introduced or plan to introduce a registration system which will record the legal status of all accessory apartments. Obviously, you should check the status if a registration system exists.

Nevertheless, you should beware of purchasing a house with an accessory apartment. Be particularly cautious when you see the words "owner does not warrant retrofit status". This probably means that it is simply illegal. If it were legal, they would say so!

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
www.OntarioRealEstateSource.com

Title Insurance Preferred Over a Title Opinion

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Mon, 23 Nov 2009 17:54:27 -0600

Title Insurance Preferred Over a Title Opinion

By Brian Madigan LL.B.

I thought that I would give you some good reasons to buy title insurance.

Until 1997, the common practice in Ontario was to secure an opinion on title from a solicitor. If something went wrong, then you simply sued the lawyer. Now, that's easier said than done!

Title insurance has now come to the rescue. Certain identified risks are covered under a policy of insurance. The coverage is much broader than the matters set out in an opinion letter from a solicitor.

Here are some of the reasons why "insurance" may be better than an "opinion":

1) it covers matters not included in a title opinion,

2) you don't have to sue your lawyer if something goes wrong,

3) it provides funds to solve the problem,

4) the insurer provides creative solutions to rectify the issues,

5) it pays your legal fees,

6) it provides compensation to you, if your problem cannot be resolved,

7) it covers the claim and legal fees if someone sues you,

8) it's inexpensive,

9) there is a one-time premium,

10) you may save on the usual disbursements in a transaction because some searches are not completed,

11) you may save the cost of a new survey in most cases,

12) it protects you against survey errors, in both old an new surveys,

13) it protects against errors in information provided by municipalities and utilities,

14) you may negotiate to obtain additional coverage for other issues including environmental hazards, native land claims and risks you have assumed by contract,

15) it protects you against executions,

16) it protects you against certain construction liens,

17) it protects you against fraud,

18) it protects you against forgery,

19) it continues to provide coverage for problems arising after the closing date,

20) it protects your mortgagee so that the deal will be closed and the mortgage funds advanced.

There are probably more reasons to consider, but if these are not enough, then you're not going to buy it anyways.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Lock in Your Divorce Savings Now!

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sun, 22 Nov 2009 11:43:57 -0600

Lock in Your Divorce Savings

By Brian Madigan LL.B.

There's no point waiting for tomorrow if your assets are going up and those of your spouse are going down.

Have a look at the recent article published in the Toronto Star by Katie Daubs (www.thestar.com/printarticle/728452).

Here's a quick summary:

· Growing tired of your spouse, but worried about an expensive divorce settlement? Act now, while the economy is still in the dumps

· Economists say Canada is set for growth in the coming year - so lose your soulmate before your portfolio rebounds all the way back

· asset value is determined the date your marriage breaks down, not the date your divorce is finalized

· every day your RRSPs increase is another dollar you're going to have to share, until you give notice you want out of your marriage

· the other spouse may be taking advantage of the law

· If the date of the marriage breakdown is contested (and it often is), it could mean thousands of dollars for the other party

The Ontario Court of Appeal has recently ruled judges can take dramatic changes into account when determining equalization payments, if the difference is "unconscionable."

I was quoted in the article:

If you're inspired by the settlement, take note: some people, including real estate agent and former lawyer Brian Madigan, find the whole idea a "little abhorrent."

"You mean, I have to phone my real estate agent to find if the timing is right?" the realtor said. "Like, 'Oh my god the real estate market is going to go up in the spring, and February is the end of RRSP season, I should lock in the savings?' "

Obviously, this could start a cottage industry for real estate valuations.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Land without Laws

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sun, 22 Nov 2009 10:18:10 -0600

Land without Laws

By Brian Madigan LL.B.

You might think that the rule of law would apply equally in Ontario. Apparently, it doesn't, according to Julian Fantino the Commissioner of the Ontario Provincial Police.

David Brown and Donna Chatwell are suing both the OPP and the Province of Ontario for failing to protect them or enforce the law against native protesters around their home in Caledonia, Ontario.

Fantino agreed in the lawsuit that :

"....Threats, kidnapping, intimidation, harassment, vandalism, mischief and theft by native protesters in Caledonia against a family whose house is almost surrounded by the contested site are not valid expressions of a land claims dispute."

Nevertheless, the OPP stood back and failed to take action. Fantino's defence was that any such steps might escalate the situation and place others in danger, including his own officers.

Previously, the OPP has been accused of failing to enforce Court Orders issued by a Judge of the Superior Court of Ontario.

This is a rather sad situation for just about everyone concerned. From a simple real estate perspective, Caledonia remains an area in Ontario where the rule of law does not prevail, and that makes it a poor investment, notwithstanding that prices are otherwise attractive.

Inaction on the part of the government is not helping anyone.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Should You Have Title Insurance?

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sat, 21 Nov 2009 10:22:42 -0600

Should You Have Title Insurance?

By Brian Madigan LL.B.

That's a good question. Prior to 1997, there was no commonly available title insurance in Ontario and yet it was the norm in the United States.

Solicitor's Opinion

Traditionally, purchasers sought a title opinion from a solicitor who undertook a search of the title to the property. This included checking the chain of title as well as completing searches to determine if there were any liens or whether the property complied with zoning and building by-laws. The solicitor would express an opinion as to whether the title was "good and marketable". A mortgagee in receipt of this opinion would advance the funds so that the purchase could be completed.

If problems arose in the future with the title, liens, zoning or other matters, it would be necessary for the purchasers to sue their lawyer. First of all, most people are reluctant to sue their lawyers. While they may not like other people's lawyers, they usually like their own. So, if the claim is small, they are unlikely to pursue the matter.

Let's assume that it is a large enough claim to pursue. They will need to retain another lawyer. The second lawyer (a specialist in litigation) will have to establish that the first lawyer was negligent in completing the transaction. This is much easier said than done. The first lawyer will be very reluctant to admit "negligence", after all, one's legal reputation is at stake. So, you will probably find that the matter of negligence is denied and that the claim is being vigorously defended. This time, the solicitors will be retained by the insurers for the Law Society (which provides malpractice insurance coverage). They will have a great deal of expertise in the field. So, the second lawyer will also have to retain a third lawyer as an expert witness, this time one who is a specialist in real estate. This case is not going to be simple!

You may indeed have an excellent case, but unless your case is the legal equivalent of being rear-ended in a car accident, you're fighting an uphill battle. And, you're financing all the costs in the meantime. Further, while all this litigation is going on, the title problem is still unresolved.

For example, if your house is too close to the lot line, you will still have to make application to the Committee of Adjustment for a minor variance. If your eavestrough overhangs your neighbour's property, then you will either have to remove it, or obtain an encroachment agreement from your neighbour. This may cost some money.

Ultimately, you will have to prove that your lawyer's conduct in your case, fell below the proper and acceptable level of service. What if these problems were mentioned by your lawyer, but no one thought that anything would really ever go wrong? The municipality and the neighbour just won't notice. In this case, you've probably accepted the risk. Or, perhaps the lawyer properly explained it, but failed to really talk you into solving the problem at the time. If that "explanation" was the same explanation that is customary, then you are out of luck. There is a problem, the lawyer met the appropriate standard of care, and unfortunately for you, the risk materialized.

Title Insurance

There is another entirely different approach to this same matter. It falls under the discipline of "risk management". Just buy insurance! Whatever the problem, just figure out how likely it is, and pay the appropriate premium. Insurance will take care of the rest.

The first issue is that it doesn't matter whether your lawyer was negligent or not. So, please feel free to call, and both you and your lawyer will sigh in relief when it is determined that you purchased "title insurance".

The next step is to report the claim. You can either do this directly or your lawyer will do so on your behalf. The insurer is looking to find a cost effective solution. If the setback was not sufficient, then they will retain your lawyer or another lawyer to proceed with an application for a minor variance. If it is an encroachment agreement that is required, they will negotiate with your neighbour, pay a sum necessary to secure your neighbour's consent and attend to the payment of your neighbour's legal fees. Another solution may simply be to replace the eavestrough.

You have to remember that your neighbour doesn't have to agree, and the Courts will not force him. But, the insurer will have to offer sufficient funds as an inducement to make it worth his while. Possibly, in some cases, where there is no real solution available, you will be entitled to the difference in value between your property with the problem and your property without it.

Unlike the reaction of your solicitor to an accusation of professional negligence, the title insurer really needs some claims to pay. If nothing ever went wrong, who would buy insurance? So, they really do want to establish a reasonable track record of claims payments so that everyone will say "you should always buy title insurance".

Most of the time, nothing goes wrong, but in that less than 1% when it does, you are much better off with the insurance.

What's Covered

Most title insurance policies cover:

1) title problems that could affect the marketability of the title, and
2) legal services provided by your lawyer in the transaction.

The policy is issued in the names of the purchasers and the mortgagees. They are all covered as their interests appear. The policy is issued for a one-time premium and affords protection not only to the original purchasers but also their heirs. New purchasers will have to obtain their own policy.

In addition, certain title related issues that are beyond the scope of the usual solicitor's title opinion are also included, for example fraud, forgery, survey errors and errors made by municipalities and utilities in providing information to lawyers. Further, it covers work orders, access rights and conflicting interests in property.

Another very important feature is that the policy continues in effect. It is not a one-time opinion. If something goes wrong afterwards, you are still covered. What if your neighbour erects a fence over your property line, two years after you buy the property? You don't have to look for your solicitor's opinion! Of course, there was nothing there, but, you're still covered under the title insurance policy. So, post closing events like fraud and new encroachments are covered. So too, are some construction liens. If you simply don't pay one of your contractors and the contractor registers a lien, then that will not be covered, but if you pay the general contractor and he fails to pay one of his sub-contractors, then that lien will be covered.

The specific "title issues" that are covered would include the following:

1) defects in title,
2) conflicting interests or ownership of the land,
3) mortgages or other encumbrances affecting title,
4) the un-marketability of title,
5) lack of compliance with restrictive covenants,
6) the existence of work orders,
7) major encroachments,
8) access-related problems,
9) absence of a legal right of access,
10) errors in rights of way or easements, and
11) defects due to tenancies.

There are, of course, other title related matters that are not mentioned. In all cases, you should see the particular wording in the relevant policy.

Aside from the "title issues", the matter of "legal services" is also covered. This would include errors, omissions or negligence by your lawyer in respect to the following:

1) the manner of taking title,
2) the implications of taking title in the name of a particular person,
3) financial implications of the purchase,
4) financial implications of the mortgage,
5) Land Transfer tax implications (both its application and calculation),
6) Income Tax implications,
7) advice regarding the Agreement of Purchase and Sale,
8) advice regarding chattels with liens,
9) errors and omissions in the statement of adjustments, and
10) advice with respect to risks and proposed remedies.

So, just about everything that a lawyer could do wrong is covered. In fact, if there is legal liability at law, then you are covered. You don't need to sue your own lawyer, you just present the claim to the insurer.

The insurer will, in the event of a claim:

1) pay all the costs necessary to rectify the problem,
2) compensate the purchaser by paying up to the full amount of the insurance policy, and
3) pay all of the associated legal costs of defending the matter in Court.

What Is Not Covered

It would be reasonable to assume that some things are not covered. The standard exclusions would mention environmental risks, the purchaser's right to change the use of the property, make certain renovations to the property, native land claims and the risks or problems that the purchaser agreed to assume in the agreement. These exclusions are reasonable.

In fact, for an additional premium the insurer might be persuaded to underwrite some of these additional risks. The point here, is that they will not be covered under the standard policy that it issued to everyone. That would be too expensive! So, delete those risks, and the particular purchasers who might face these specific issues will have to deal with them, either in the agreement, through a solicitor's opinion or through a rider to the title policy.

Land Titles Assurance Fund

This is a fund underwritten by the Province to guarantee the titles to certain properties registered in the Land Titles system. There is a very narrow definition of title. At this moment, most properties are still registered under the Registry system (where no insurance program is in effect), but eventually that will change.

The advantage of the title insurance policy is that it provides an immediate solution and deals with all the associated costs. If at some point in the future, you are reimbursed through the Land Titles Assurance fund, then you would have to remit these funds to your title insurer. They paid you first, and waited months perhaps years for payment.

Premium

Generally, the premiums have been relatively low for the various coverages that are provided. In truth, most of the time nothing goes wrong. Almost all conveyances go through without a problem. But, the ones that have a problem, usually have a very expensive problem.

The title insurers are professional title underwriters. They know how often things go wrong. Even if there is an identified risk, only rarely does that risk materialize. How often have you seen someone driving very carelessly, but they didn't hit anybody. This basic insurance principle allows the underwriters to ascribe a relatively low premium to the transaction. Also, the acquisition of a policy may eliminate the need to incur certain disbursements, including a new survey. These savings can easily exceed the policy premium.

Recommendation

Buy it, it's worth it! Even your lawyer will be happy. Now they know that you won't ever sue them.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Warning Clauses in Agreements

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Fri, 20 Nov 2009 17:59:26 -0600

Warning Clauses in Agreements

By Brian Madigan

Within the last few years it has become increasingly common for realtors to place warnings within the terms of the agreement of purchase and sale.

Precedents for such clauses abound, and the following is an example:

"The Buyers acknowledge that they have been advised to seek outside professional advice such as lawyers, insurance agents or brokers, title insurance, mortgage consultants, and the Chief Building Inspector for the Regional Municipality of Peel prior to the signing of this offer on the subject property."

The hope and expectation is:

· The Courts will recognize that the realtor is doing his job

· The advice looks like good advice

· If the purchaser were smart, then they would take the realtor's advice

· The realtor has disclaimed responsibility

· The purchaser is now the only one to be blamed for their own actions

First of all, I don't like the warning clause. The agreement of purchase and sale is just no place for that type of discussion. It's not very professional.

If my agent started warning me about things and giving me notices in documents directed to other people, I would be offended, and I know both purchasers and vendors who have been offended by similar clauses.

There are no other similar documents that I have ever seen in legal practice.

Now, if you are a realtor and want to protect yourself, the best way is to write a letter or similar document explaining all the problems. It can be delivered to the client. It's private and confidential, which is specifically what this sort of advice should be.

You can prepare two copies and give both to the client. He keeps the first one. On the bottom of the second one, there is a provision included to the effect that the client acknowledges having received a copy. This one he gives back to you for your file. Or, send it by e-mail or fax and you have "proof" that it was, in fact, given to the client.

A final method, and more formal, particularly if you don't want the client to go ahead, is to have a separate document prepared which is an authorization.

This document will direct you to go ahead with the transaction, notwithstanding your advice to the contrary. That's the practice followed by lawyers, and I think it makes a lot of sense here.

Here is what the Acknowledgement might look like:

"Acknowledgement

To: John Smith, the purchaser

Re: 25 Elgin Street, Mississauga

Authorization and Direction

The purchaser hereby acknowledges having been advised to seek outside professional advice including solicitors, insurance agents or brokers, title insurers, mortgage consultants, and the Chief Building Inspector for the Regional Municipality of Peel prior to the signing of this offer on the subject property.

And more particularly, the purchaser:

· Authorizes and Directs the agent to prepare and submit this Offer without such advice

· Accepts all risks occasioned by reason of the failure to follow such advice

· Releases the agent from all liability arising by reason of such failure

· Indemnifies and agrees to save harmless the agent from any liability arising from such failure

Dated at the City of Mississauga this 20th day of November 2009.

Signatures etc."

As a word of caution, all documents appearing here are intended for review, consideration and discussion. They are not intended to be used in a specific transaction. Readers are requested to seek legal advice if they propose to use a document in practice. The author specifically disclaims all such responsibility, and readers use any such documents at their own risk.

You will of course see the difference. This is a private and confidential document between the agent and the principal (realtor and client). It is not there for all to see, particularly the other side in the proposed transaction.

Courts might be a little concerned about the first approach, and will not permit it to have its intended effect. The second approach is far more professional and is similar to what would be prepared in a law office in a similar situation.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters,

Royal LePage Innovators Realty Brokerage

www.OntarioRealEstateSource.com

Toronto's Museum Makes Top Ten List

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Fri, 20 Nov 2009 17:19:04 -0600

Toronto's Museum Makes Top Ten List

By Brian Madigan LL.B.

But, not in a good way!

It's #8 on the list of the world's ugliest buildings as selected by the members and editors at VirtualTourist.com.

"Many of these buildings don't have the warmth of an ice cube while others don't even seem completed. Either way, they make for very interesting conversation," said general manager Giampiero Ambrosi.

This is what he said specifically about the ROM Crystal:

"Michael Lee-Chin Crystal, Royal Ontario Museum, Toronto. What I.M. Pei's pyramid is to the Louvre, so is the relatively new Michael Lee-Chin Crystal to the Royal Ontario Museum. While many praise the glass structure, just as many are troubled by the incongruity to the original, more traditional museum that still sits directly beside it."

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

HST Adds to the Cost of a New Home

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Thu, 19 Nov 2009 20:31:35 -0600

HST Adds to the Cost of a New Home

By Brian Madigan LL.B.

The Province of Ontario has introduced legislation to combine the eight percent Provincial Sales Tax with the five percent federal Goods and Services Tax, creating a 13 percent Harmonized Sales Tax (HST).

It is proposed that the HST will come into force July 1, 2010.

Purchasers of real estate will face additional taxation, including:

· taxes upon certain services including moving costs, legal fees, home inspection fees, mortgage insurance premiums, title insurance, and real estate commissions (all of which were previously exempt under the PST; and,

· additional taxes upon the purchase price of newly constructed homes.

Application to Residential Properties

· HST will not apply on the purchase price of re-sale homes.

· HST would apply to newly constructed homes.

· a rebate is proposed so that new homes across all price ranges would receive a 75 per cent rebate of the provincial portion of the single sales tax on the first $400,000.

For an $800,000 new home, this would be an additional $40,000, and for a million dollar home, this would be and additional $56,000. That's a significant new tax.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

November 2009 Toronto Real Estate Market Cools Off

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Thu, 19 Nov 2009 15:03:54 -0600

November 2009 Toronto Real Estate Market Cools Off

By Brian Madigan LL.B.

Here is the latest report from the Toronto Real Estate Board:

"In the first two weeks of November, Greater Toronto REALTORS® reported 3,666 sales - up 84 per cent compared to the first two weeks of November 2008. The average price for these transactions was up 10 per cent year-over year to $415,066.

Increased interest in ownership housing has been widespread throughout the GTA and across all housing types," said Toronto Real Estate Board President Tom Lebour.

However, it is important to point out that we are now making comparisons to the fall of 2008 when we experienced a marked decline in sales and average price"

Year-to-date sales, at 78,233 are up 11 per cent compared to 2008. Average price, at $393,180, is up by three per cent.

Sales and average price in the GTA this winter will be well above levels reported throughout the fourth quarter of 2008 and the first quarter of 2009, according to Jason Mercer, TREB's Senior Manager of Market Analysis."

Summary Of Mid November Sales Volumes and Average Prices

Note: November 2009 are shown with November 2008 in brackets

City of Toronto("416")

Sales: 1,560 (830)

Prices: $441,893 ($400,305)

Rest of GTA ("905")

Sales: 2,106 (1,161)

Prices: $395,195 ($358,130)

GTA

Sales: 3,666 (1,991)

Prices: $415,066 ($375,712)

That was the full TREB report. But remember, TREB compares statistics annually, while the actual factual information is available bi-monthly.

So, which way is the market going? Up or down?

For a correct answer to that question we have to look at the average price of a single family home in the GTA. As of 15 June 2009, five months ago, that number stood at $407,716. It then dropped until 15 October, increased to $423,559 at the end of October but dropped again in the first two weeks of November.

Let's have look at the average prices over the last few months:

$415,066......15 November
$423,559......30 October
$414,479.....15 October
$406,877.....30 September
$393,818.....15 September
$385,978.....30 August
$383,796.....15 August
$395,414.....30 July
$394,750.....15 July
$403,972.....30 June
$407,716.....15 June
$395,609.....31 May
$385,601.....30 April

The market in Toronto is starting to "cool off". This is a traditional occurrence every November.

What does this mean? Maybe nothing! Remember that TREB compares results annually, so that smoothes out the bumps over the long haul. The market is "up" from last year. If you are watching the market closely, the TREB report really does not describe what is happening in the market now, it makes a comparison to last year. There was a world financial crisis, bank failures, numerous bankruptcies and a stock market which had lost half of its value. So, if that's the comparative number, then this news is positive. But, it shouldn't be worth headlines today, however it is: "Home Sales Up 84% in First Half of Month" (Toronto Star 18 November 2009).

This is just pure and simple "sensationalism". All that really means is that there were 726 more deals in those two weeks this year than last. In the context of the year, November is a poor month. There are just less than 100,000 transactions annually, most taking place in months other than November.

It is also important to remember that average sale prices do not have the same meaning as the price of a stock traded on a public stock exchange. Each common share in a company is absolutely identical, so you can track the prices accurately over time. However when it comes to real estate transactions, we are simply talking about averages. No two properties are the same. Every property is different. So, the averages become more and more accurate with larger volumes. A yearly number might average out almost 100,000 properties, but a two week period may report only a few thousand. So, be careful in terms of over analyzing!

It is noteworthy that the overall sales volumes are now slightly ahead of last year. That means that deals are being done, and the demand is being satisfied. Going forward, there will be fewer buyers in the market. This, of course, means that there may be some excellent opportunities out there.

The annual highs are usually reached in May each year. Then there are cyclical declines in the summer months and a resurgence in the Fall. The October figures frequently match the Spring high. The market frequently tips over in November and this may simply be in motion again.

At the moment, there is upward pressure on prices since there is a limited supply of listings. You have to remember that a lot of prospective sellers heard that the market was "bad" so they changed their plans. Decreased supply have turned the situation into a sellers' market. But, that was old news! And, by old, I mean "October". Have another look at the prices. They are going down, not up.

Interest rates have never been more attractive. A full 1 per cent rise is about a 33%increase in the mortgage rates. That would have a significant impact on rising prices.

Longer term, real estate has always proven to be a good investment.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Seller Conceals Truth and is found Liable for Faulty Disclosure Statement

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Tue, 17 Nov 2009 20:53:53 -0600

Seller Conceals Truth and is found Liable for Faulty Disclosure Statement

By Brian Madigan LL.B.

The case of Cutts vs. Okipnik is another Disclosure case. The action was tried in the Court of Queen's Bench of Manitoba.

The purchasers claimed that the vendor fraudulently or negligentyly misrepresented the condition of the property at the time of sale.

The buyers testified that this was the first house they had ever purchased and that it was very important that there be no cracks or leaking in the foundation. They both said that they had rejected other houses that had these identifiable problems. Mrs Cutts testified that, after seeing a property condition statement that referred to leakage, they asked their real estate agent to make further inquiries and were satisfied with the answers provided.

Not surprisingly, their agent and Okipnik's agent had no independent recollection of inquiries being made. However, both Todd and Colleen insisted that the property condition statement be provided as part of the offer to purchase.

Disclosure Statement

Okipnik provided the Seller's Property Condition Statement as follows:

1. (H.) To your knowledge has there ever been any flooding or leakage affecting any portion of the property, during the period of your ownership of the property, (into the house or garage or into low-lying areas of the yards or other part of the property) and from any cause or source (rainwater, snow melt, sewer backup or other cause or source)?

The answer checked off was "yes, leakage was fixed via drainage ditch. Works well."

5. (A.) Are you aware of any cracking, shifting or movement of the structure, that is not readily visible?

The answer checked off was "no".

5. (C.) To your knowledge, during your ownership of the property, has there ever been any damage to the buildings due to wind, fire, water, moisture, insects or rodents?

Answer "no".

The Facts

The deal was closed and the buyers moved in early January, 2004 and as you might imagine immediately became aware of problems.

Numerous photos were filed that show rust and mildew in the northeast corner and rust on the east wall, mildew on the carpet and wall in the laundry room, water leakage with water coming in from multiple points along the north end east walls, water leakage with water coming out of the furnace room and in from the north wall, and leakage along the north wall in the furnace area.
Clearly, there was a moisture problem.

Judge's Observations on Seller's Testimony

I found Okipnik lacking in credibility. A representative sampling follows:

1. Okipnik testified on direct that he was not even certain if the writing on the P.C.S. was his and that he did not recall filling it out. He tried to explain this as due to a heart attack and mini-stroke that he suffered shortly before the sale of the house. He was cross-examined about testimony given at his examination for discovery that he believed his agent had filled out the P.C.S. His final answer was that he just signed it to get it over with because he was too anxious for the sale and never bothered to read it.

2. He testified that contrary to what the P.C.S. contained he had in fact patched the northwest wall of the basement in the early 1980's to seal it and prevent leaks. This patch was completely covered by insulation and drywall at the time of sale. His only explanation was that he had not remembered that patch when he answered the P.C.S.

3. He denied at trial that there were any problems with water or moisture after the basement was furnished. However, at his examination for discovery he had testified that there was water on the floor in the laundry room on a few occasions when there was heavy rain or melting, and further that he had never found a source for that water. When asked to explain the answers from the examination he indicated that he did not recall those answers and was probably wrong then. He then added at trial that any water in the laundry room was from his washing machine. He had just remembered that the night before he testified and he further confirmed that his memory was better in 2006 than it was in 2004.

4. Okipnik testified that the state of the floor in the basement was very good, and then said it had had cracks earlier. He had torn the floor out and redone it in the early 1980's because of all the cracks. He was confronted by his testimony on discovery that the floor was redone around 1987, shortly before he installed the drywall. Okipnik replied that those dates were absolutely wrong.

5. Holes were observed in the floor in the southwest corner. Okipnik testified that he drilled those holes in the floors because he was using them to work with condensers. He denied that those holes were ever used to drain water from the laundry room one foot away, where there had been water in the past.

6. There is discoloration on many of the walls with patches of what looks like tar. Okipnik tried to suggest that he might have used tar to glue the insulation to the concrete walls.

7. Photos show water channeled through washed out concrete in the laundry room. Okipnik could not explain what that was, and purported not to recognize it.

8. Okipnik was absolutely inconsistent on his dates. He testified that the walls were finished the year after the floor was done. The markings on the drywall confirm that it was manufactured in 1988, so if his testimony is correct then the floor would have been done around 1987, which he absolutely denied. He then said that he was married in 1986 and the floor was finished before that time. He then said he realized that it had to be the summer before he was married or in 1985 at the latest. There was not the slightest consistency in any of his testimony on when work was done.

9. The P.C.S. suggested in answer to question 1.(H.) that leakage was fixed via the drainage ditch that he dug in his backyard. He denied at trial that there had ever been any leakage into the house. Again, at his examination for discovery he gave contrary testimony, as follows:

Q. 35 And what were the signs that you noticed that there was leakage?

A. There was water on the floor.

Q. 37 And where was the source of the water?

A. There was a crack in the foundation.

His response was that he did not recall those answers, but must have given them. He then tried to explain that away as a situation where he probably said water but meant water stains.

10. In his statement of defence at paragraph 8, Okipnik claimed that the walls ere drywalled in 1987. This could not be correct since the drywall was manufactured in 1988. He further claimed in his statement of defence that "at that time" a small crack in the north wall was filled. He testified that that was not correct and commented that he had no idea why he made that statement.

The Law

Is Okipnik liable to the Cuttses?

The leading case in Manitoba in this area is Alevizos v. Nirula [2003] MBCA No. 148.In that case the issue was whether the trial judge was correct in finding that there was a fraudulent misrepresentation when a false and misleading P.C.S. was provided to the purchasers.

In upholding the decision at trial, Scott, C.J.M. for a unanimous court stated: "It is clear that silence and half-truths can amount to a fraudulent misrepresentation." And further: "In addition to silence and half-truths that mislead or imply something other than the truth, active concealment of a defect that would otherwise be patent is treated as fraudulent."

Judgment

The trial Judge awarded Judgment based on the following damages

1.Repairs to foundation.....$15,860.45
2.Repairs to basement.......$23,500.00
GST + PST........................ $3,290.00
Total ................................ $42,650.45

In addition, interest was added to the Judgment.

Comment

As you probably noticed the Judge went on at length about the seller's lack of credibility:

The seller:

· Was forgetful

· Uncertain in his responses

· Failed to remember dates and times correctly

· Inconsistent in his story from the discovery to trial

· Completely failed to recall prior testimony given under oath

· Admitted his inconsistent testimony

· Blamed his poor memory on a heart attack

· Admitted that the Disclosure statement was in error

· Made up foolhardy explanations

· Refused to admit obvious facts

· Offered foolish explanations of prior testimony

· Unable to account for his prioer testimony

In this case, the trial Judge did not have much of a problem. The seller was not a credible witness at all.

It is noteworthy that the seller's agent was not called upon to assist with the explanations. It is also interesting that the agent did not counsel the seller either to tell the truth or not sign the Disclosure statement at all.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Ontario Discriminates Against the Mentally Challenged

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Mon, 16 Nov 2009 08:24:19 -0600

Province of Ontario Discriminates Against the Mentally Challenged

By Brian Madigan LL.B.

You might think that the Province of Ontario would do its best to uphold the rights of its most vulnerable citizens, but it doesn't.

Through the Ontario Lottery and Gaming Corporation (OLG), the Province insists upon the completion of a skill testing question. Apparently, or so their thinking goes, this will change a game of chance to a game of skill. We all know that's just "silly".

But, generally we are prepared to go along with this "fiction" for the sake of placating the anachronistic thinking of a few.

However, not everyone is capable of answering the skill-testing question. I'm sure you know many people, who are otherwise eligible. They are citizens, taxpayers and adults. It's not just the mentally challenged.

However, they may be from other countries, they may not speak English well, they may not be able to undertake what may be described as simple math. Others for one reason or another have never attended school, have never learned mathematics and do not have the ability to communicate.

Are all these people to be denied their right to win?

Let's get with it, and drop this foolhardy notion that the simple math calculation saves everyone's morality. Extend the opportunity to all without discrimination!

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Eccentric Mathematician: There's Method in His Madness

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Mon, 16 Nov 2009 07:15:39 -0600

Eccentric Mathematician: There's Method in His Madness

By Brian Madigan LL.B.

Grisha Perelman solved one of the most difficult mathematical problems in the world. There are only a limited few who understand the question itself, and only a handful who might have the "smarts" to figure it out.

He lives in apparent poverty having rejected a million dollar prize for his solution

It's hard to figure out his motivation, but, we have to remember that he's probably the smartest guy in the world. He's not crazy. He's the most logical thinker in the world.

The mother is a mathematician too. The $60/month pension that they both live on, can't really be the whole story. Obviously, they want to project an image of poverty.

It's not that he can't get a job. The math departments at most universities would all love to have him.

Also, the million dollars is not really gone. It just hasn't been picked up yet. So far, it's been there for several years without being claimed. But, he is the only one who can claim it. He solved it. Anyone else, would just have copied his solution.

So, in a way, it's an untaxed investment that can be picked up anytime he wants.

He's an advocate for "ethics".

He doesn't trust mathematicians. He says they steal ideas, solutions and copy each other's work without giving credit. He doesn't trust the scientific journals. From the time it is submitted, the work is at risk. And by the time it is published, you might find that others have suddenly "discovered" the same thing. And, you are #2, not #1.

Hence, his solution of the internet. It is public and it is date stamped! No one can steal his work. The million dollar prize is secure.

By not picking it up, he gets "mega-millions" in publicity. Otherwise, there's not much of a story.

As for the long fingernails, I suppose he doesn't need to use a calculator if he has an abacus in his head.

I think there's a method to his madness. He may have just out-thought the entire mathematics community. And, he might get that oceanfront property after all.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Homeless Man without an IQ Fails to Pick Up Million Dollar Lotto Prize

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sun, 15 Nov 2009 14:03:49 -0600

Homeless Man without an IQ Fails to Pick Up Million Dollar Lotto Prize

By Brian Madigan LL.B.

Well, let's have a look at that statement:

1) Technically, he's not homeless, but he lives with his mother on her $60/month pension

2) Technically, he's not without any actual score, but his score cannot be measured

3) Technically, he didn't enter the lotto, but there is a million dollar prize, and all he has to do is pick it up.

So, what's the story?

Grisha (Grigory) Perelman, a bachelor and a recluse is 43 years of age and lives at home with his mother in St. Petersburg. He doesn't have a job nor does he have any other means of financial support. Some believe that he suffers from Asperger's Syndrome (that's Autism light).

He certainly is different. His hobby was searching for mushrooms in the woods, but he has become quite reclusive and he doesn't appear to do that anymore.

He has generally let his overall appearance "go". He was often sighted with long shaggy hair, fingernails 4 to 5 inches in length and dishevelled clothing. Now, he rarely speaks to people.

The IQ

Let's put it this way: he's a pretty smart guy. He's very good at conceptual thinking. Of the 6,842,000,000 people on earth, he's probably the smartest.

So, what does that mean? It certainly means that he really couldn't be tested or properly assessed in terms of his Intelligence Quotient. Who would make up such a test? Who would assess him? Who could say how smart he is? The IQ test is for dummies!

Grisha then, really doesn't have an IQ.

Proof that Grisha is Smart

In 1982, he won the gold medal at the International Mathematical Olympiad with a perfect score. No one before, and no one after has achieved that mark.

However, Grisha seems to have a significant disdain for medals, awards and accolades. He has been awarded many of significant distinction in the mathematical field. He just won't attend, and won't pick them up.

Unlike the hero in "Good Will Hunting", Grisha is a misfit and is frequently described as "socially inept".

The Lotto Prize

The Clay Institute for Mathematics posed a problem and offered a million dollar prize to anyone who could come up with a solution. Just one condition, publish the answer in a mathematical journal so that it could be checked by scholars. Once you do that, all you have to do is pick up your prize.

So, the rules of the game seem simple enough, the only problem is figuring out the answer. The question was originally postulated in 1904. It is known as the Poincare Conjecture because it was first posed by the French mathematician, Jules Henri Poincare. It seeks to understand the shape of the universe by linking shapes, spaces and surfaces.

It wasn't solved by Einstein and it wasn't solved by Steven Hawking. But, Grisha Perelman figured it out and being the recluse that he is, posted it on the internet. After two years of checking by other mathematicians, it was finally determined that he had the right answer.

One little problem: he won't publish it in a scientific journal. Even you and I can figure that one out: no money!

The prize is still there. He is the only one who can pick it up. His name is written all over it. There's no expiry date.

Sir John Ball, president of the International Mathematical Union, travelled to St. Petersberg to meet with Perelman. He wanted Perelman to accept the prize.

Perelman stated:

"He proposed to me three alternatives:
1) accept and come;
2) accept and don't come, and we will send you the medal later;
3) I don't accept the prize.

From the very beginning, I told him I have chosen the third one... [the prize] was completely irrelevant for me. Everybody understood that if the proof is correct then no other recognition is needed."

So, the moral of the story I suppose is that "pure mathematics is pure mathematics", or, perhaps that "there is more to life than money".

But, a million dollars would go a long way to purchase a nice oceanfront property somewhere!

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

ORES Real Estate Index for October 2009

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Fri, 13 Nov 2009 21:23:21 -0600

ORES Real Estate Index for October 2009

By Brian Madigan LL.B.

Here is the "ORES REAL ESTATE INDEX" which tracks the average resale prices of single family homes and condominiums in the Greater Toronto Area (GTA). It also tracks certain benchmark comparisons such as the price of oil and gold, as well as the Consumer Price Index.

In addition, the stock market indices for Toronto, and the three largest US markets are also compared.

For ease of comparison, everything we look at is worth 100 points on the Index as of 1 January 2005. That time period compares favourably with the four year average used as a standard benchmark comparison in the mutual fund industry. Actually, it runs for 57 months or four years and nine months.

As of 31 October 2009, [the last two months] and (the highs):

Real Estate

131.08.....[125.91/120.05] (131.08) GTA single family homes (average prices)
126.68.....[126.21/125.74] (126.68) All condos in GTA (average prices)
132.27.....[131.70/131.14] (132.27) Downtown Toronto Central Condos
120.85.....[120.36/119.99] (120.85) East condos
120.72.....[119.17/130.60 ] (120.72) North condos
129.69.....[129.17/128.65] (129.69) West condos

Other market comparisons

243.13.....[232.79/223.38] (243.13) gold (price per ounce)
175.25.....[160.28/159.17] (320.88) oil (price per barrel)
131.08.....[125.91/120.05] (131.08) ORES Index single family homes
118.54.....[123.80/118.08] (158.90) TSX index
108.92.....[108.92/108.92] (109.31) CPI index
99.16.......[102.91/97.41] (130.99) NASDAQ index
92.59........[90.65/88.76] (132.47) Dow Jones index
87.72.......[89.49/86.40] (131.16) S&P Index

Using the Index

Just a quick note on reading the information. Have a look at the ORES Index for Real Estate (single family homes). As of the end of September, the index stood at 131.08. That's a 31.08% increase in 58 months. That means the increase is 0.5358% monthly, or it could also be expressed as 6.430% annually. The performance here is shown without annual compounding for the sake of simplicity.

The same index was 125.91 at the end of September and 120.05 at the end of August. The next number, in square brackets is the all-time high since 1 January 2005. That number is 131.08, so the October figure is in fact the all time high.

The other statistics are reported in a similar fashion for the ease of comparison.

Observations (on the Index)

As we use index, there are several notable comments:

· Commodity prices are just commodity prices

· There is no other "extra return" for commodities

· The same is true for the CPI

· The CPI is a benchmark to see whether you are keeping pace with inflation, that number is 108.92

· For a realistic performance goal, you should aim for CPI plus 3.5% annually

· Stocks provide dividends in cash or extra stock. This return is additional to that shown in the stock market indices

· The stock market Indexes only measure the survivors. So, this year both GM and Chrysler would have been dropped due to the bankruptcies

· If you held GM and Chrysler, you lost everything, but two new companies moved in to replace them in the Indexes

· Real estate offers a return in terms of occupancy. You can rent out the property and receive income, or occupy the property and enjoy it yourself

· Actually, I should have mentioned that if you held gold bullion, you could sit in a room, count it, and enjoy that experience too. I'm not quite sure how to measure that. You'll have to ask King Midas or Goldfinger!

Comparative Observations Using the New Index

· Gold was the best performer

· Oil was the most volatile, (yes it dropped in half)

· Real estate was the most stable, with single family homes outperforming condos

· Downtown condos are beginning to return some performance, but they are substantially off their earlier highs achieved just before the commencement of this Index

· Our own stock market posted reasonable gains, and is close to single family homes

· Two of the three US stock market indicators show negative numbers, with the NASDAQ just returning to positive territory

Conclusion

For steady, predictable, measured gains pick real estate. It's a solid performer with lower risk (less volatility) and generally moving in a positive direction.

And remember, when it comes to real estate, it's never "wiped out" completely, like GM or Chrysler stock. So, unless you're sitting on the edge of a tsunami, you'll still own something when the storm is over.

For a benchmark of success, there's 1,000 years of history to point to a rate of return in real estate being about the equivalent of 5% per annum, simple interest (non-compounded). That means that real estate doubles in value every 20 years. There are a lot of companies (now bankrupt) that would have been happy with that return.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

The Business Broker under the Real Estate Act

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Fri, 13 Nov 2009 18:36:42 -0600

The Business Broker under the Real Estate Act

By Brian Madigan LL.B.

A business broker is regulated in Ontario under the same legislation that applies to real estate agents, namely the Real Estate and Business Brokers Act 2002 (Ontario).

In fact, under the Act a business is considered to be real estate.

There is considerably more negotiating when it comes to buying and selling a business than an ordinary real estate transaction, and it requires specialized expertise.

For a business broker to undertake the task of representing either the buyer or the seller, there are some additional considerations that are over and above the routine real estate deal:

Employees
Knowledge of employment laws (Employment Standards)
Knowledge of the common law of wrongful dismissal
Key employee agreements
Knowledge of collective agreements
Management agreements
Training agreements
Consulting and Supervisory agreements
Non-Competition agreements

Business Asset Contracts
Equipment and machinery leases
Equipment and machinery pledge agreements

Business Financing
Pledges of assets
Pledges of receivables
Fixed and floating charges

Taxes
Income tax implications (deferred and unpaid taxes)
GST implications
PST implications
HST implications

Occupancy
The lease, (if rented premises) the right to remain
Chattels and fixtures that are part of the business
Termination rights

Key Contracts
Intellectual property
Maintenance agreements
Client and customer contracts

Insurance
General liability insurance
Environmental liability insurance
Property insurance
Vehicle insurance
Business Interruption insurance
Key-Man insurance
Buy-Sell agreement insurance

The above list is far from exhaustive. It is simply to illustrate that there are a number of new issues and considerations when a business is being bought or sold beyond the usual deal.

A business broker must know what is truly for sale. Will the employees stay with the company? Who should pay them during the transition period? Are there any guarantees on the equipment. Can it be sold? If it is to be sold, can the financing be assumed?

A business broker must understand and appreciate the financial statements concerning the operation. What if the profits fall short? What happens if a key employee or large customer leaves?

And, don't forget about the taxes? The purchaser doesn't want to assume the vendor's tax liability. Should an asset purchase or share purchase be used? This varies from deal to deal. There is no standard rule of thumb.

Some businesses are successful because they have good employees, others are successful because they have good systems, good technology, or a strong customer base. The business broker should determine whether the whole is worth more than the sum of the parts. If not, maybe the business can be broken down and sold piece by piece?

Unless these solid assets of the business are transferred, the business will not likely be successful in the hands of a new owner. The business broker, first needs to determine the true value of the transferable business. Then, negotiations must take place with key employees, landlords, financial institutions and customers to ensure that they will be onside with the proposed transaction. It is only then, that an appropriate value might be established. The business broker unlike the ordinary real estate agent should be creating value at this point in the relationship.

Another interesting variation is the role of a business broker in a transaction. Usually, there is just one broker. Frequently, both parties will have the same agent. This occurs much more frequently in the sale of businesses than in ordinary real estate transactions.

So, what is the role? The Real Estate and Business Brokers Act sets out two separate and distinct roles. The buyer or seller can either be a customer or a client of the broker. The broker owes the common law duties of "fair and honest dealing to customers". For clients, the broker owes certain special duties including the common law fiduciary duties and the statutory duties set forth in the Act.

The broker must act in the best interest of the client. That's fine as long as only one party is a client. But, if both are clients, it's impossible to place both of them first on every issue. There is an inherent conflict of interest that cannot be resolved! And, no amount of disclosure can solve it.

The solution adopted in some jurisdictions in the United States is transactional brokerage. It is a concept that is permitted, but not well-known in Ontario. Here, the broker is truly a broker in the common law sense of the term. The broker is not an agent but rather an "intermediary". This reduces the potential liability for the broker. The broker works the deal, and attempts to negotiate a successful resolution. Both parties have their own independent legal, accounting and financial advice, so they are not alone, but they are not relying upon the broker. The role might also be compared with that of an arbitrator or mediator in union-management collective bargaining negotiations. Frequently, there is a far more successful outcome with someone in this type of role.

So, next time you want to buy or sell a business, consider an experienced and qualified business broker. And, maybe you want an "intermediary" rather than an "agent".

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

We Should Not Forget!

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Wed, 11 Nov 2009 09:58:16 -0600

We Should Not Forget

By Brian Madigan LL.B.

We should not forget. Our rights and freedoms in the "free world" were given to us by those who went to war.

Our right to own land, exists only because we have a constitution that guarantees peaceable ownership of private property. Within the country, our rights exist by way of agreement. Ownership of land is evidenced by a Deed or other title documents. However, not so, when it comes to countries.

A nation has "title" to its lands not by a deed, document or some written evidence of ownership; it has "title" by what is known as "allodial title". This is actually, the highest form of ownership that one can achieve. It is ownership by brute force. It is ownership by conquest. It is ownership by success in war and in battle. It is confirmed by occupancy and the ability to defend its borders.

In a true sense, it has been obtained only because we have had soldiers willing to give up their lives to provide others with the right to freedom and the right to be secure in their homelands. These two concepts are repeated in the constitutions of every free country.

Oddly at times, over the centuries, and with an examination of the history of war for the last 5,000 years, one will often see leaders who exercised greater freedom than anyone else, and whose personal freedom was never really at risk, making decisions for the soldiers. Their names are, of course, recorded in the historical documents of almost every nation.

But, today, we honour the "unkown soldier" and the "unforgettable soldier" to whom we express our appreciation for our freedom and our security within our homelands.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

TD Banks Predicts Slow Growth in Canada for Two Full Decades

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Tue, 10 Nov 2009 20:01:29 -0600

TD Bank ~ Canadian Economy: Dismal Prospects for 20 Years

By Brian Madigan LL.B.

Well, that's what the TD Bank says! Maybe, we should just bailout now. The TD Bank just released a report on 10 November 2009 about the Canadian economy over the next 20 years. The prospects are dismal.

And, don't forget that this is the bank, (just like every other bank) that missed the opportunity to predict the world financial crisis just 3 months before it happened. So, what makes them think that they can come up with a good 20 year projection? Who knows! But, they did, so we may as well deal with it.

This type of report is one of those economic reports based upon "all things being equal". Of course, they never are. Also, in 20 years, is anyone going to remember this projection? So, we'll really never know whether it's right or whether it's wrong.

But, in the meantime, let's have a look at some of the comments, points, predictions and projections in the TD Bank report:

· "A combination of post-recession adjustments, the aging population and low productivity will limit Canada's potential growth to about two per cent over the next 10 years

· Things will not simply return to how they were

· Very slow potential growth in the next three years averaging 1.6 per cent

· Canadian economic growth potential will be half of the historic average

· Better, but still modest 2.1 per cent expansion expected in the 2013-2019 period

· Restructuring challenges facing corporations will act as a speed bump to Canada's growth

· This presents a ‘new normal' for the budgets of households and governments, with annual nominal growth to average around 4 per cent

· But since the economy is currently operating well below potential, actual growth rates in the next few years will likely exceed the 1.6-per-cent potential

· The aging population in Canada will slow labour force growth and the country will need significant productivity gains just to keep the economy on track

· In the near term, the restructuring challenges for major sectors, resulting in displaced workers and obsolete production capacity, will slow potential growth substantially

· Unemployment will result in the atrophying of certain skills and, with the permanent closure of plants

· Certain work experience that is process specific will become obsolete

· Unemployed workers' success in retraining is crucial to boosting the longer-term growth in labour quality

· Successful training will not happen overnight

· As the labour force ages, Canada's future growth will rely increasingly on productivity

· Productivity gains will be well below those achieved in the boom of the late 1990s

· We do not see a compelling case for a major productivity resurgence, given Canada's poor record on innovation

· Slumping expenditures on research and development and low investment in high-tech capital by Canadian businesses appear the prime culprits for Canada's lack of innovation and overall slowing of productivity growth

· Growth in aggregate corporate profits for domestically-focused firms will be restrained by the growth rate of the economy

· Household income similarly cannot outpace economy-wide growth over the long haul

· Investors must increasingly look abroad for better returns, but high-growth emerging markets will be volatile and more risky

· The new normal is sluggish growth going forward

· The slower economic growth will impact Canadians' standard of living

· Household income cannot outpace economy-wide growth over the long haul

· Households cannot continue to borrow at rates exceeding income growth and prospective asset appreciation

· Canada is poised to benefit further from a relative protection of its banks from the still-festering wounds of the financial crisis

· Benefits will continue to flow from large public infrastructure investments in recent years, which were enhanced substantially in this year's round of stimulus budgets"

Really, I don't know what that says, and I don't know what it means. Canada as a country will do better than other countries. The reason is simple, there are more natural resources. Our immigration policy encourages substantial growth. That is in the works right now. Lots of money is being spent on infrastructure. Sure, there could always be more, but foreign investment is welcomed. So, that will increase.

Over the next 20 years, it will not just be a rudderless ship, this country is going in the right direction. Prosperity will be based on growth, the investment in people and the wise use of capital. The combination of all three will contribute to that success.

If you look carefully, you will notice some very important moderations in the bank's position, so obviously there is "hope", and they can later do a little "backtracking" later, if necessary.

Oh, by the way, if they were so smart why didn't they know about the world financial crisis?

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Agent Cannot Force Seller To Provide Warranty

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Tue, 10 Nov 2009 18:27:55 -0600

Agent Cannot Force Seller To Provide Warranty

By Brian Madigan LL.B.

The Bird and Ireland matter is another interesting case involving the use of the Seller Property Information Statement (SPIS), not for the purpose for which it was intended, but for other purposes.

This particular matter came on by way of appeal from a lower court, to the Divisional Court of the Superior Court of Justice of Ontario in December 2005.

Briefly, the plaintiff in this case is a real estate agent and sought payment of a commission for a transaction which was never completed. At issue, was the offer itself:

1) whether it was ever properly presented, and

2) whether it met the terms of the listing agreement.

In respect to the latter, a discussion took place concerning the SPIS on the appeal.

The defendant, Ireland owned a property with her spouse with whom she was involved in a matrimonial dispute. It was agreed by Mr. and Mrs. Ireland that Mrs. Ireland would occupy the residence and list it for sale. Accordingly, Mrs. Ireland signed a listing agreement with the plaintiff real estate agent and as part of that process signed a Seller Property Information Statement.

Actually, there were two offers. The first was rejected because it was not full price. The second was a full price offer but contained two important conditions:

(i) that the vendor warrant that the water on the property was potable and available in sufficient quantity for normal household purposes, and

(ii) that the vendor warrant that the septic system was free from problems.

The real estate agent claims that the vendor indicated in the Seller Property Information Statement that she was "unaware of any problems with either the quality or quantity of the water on the property." And, for this reason, states that the vendor was under an obligation to accept the offer with those two conditions.

In fact, Bird stated that the two standard warranties that are included in offers are:

1) the pump and related equipment to perform adequately for safe and significant household use, and

2) the other warranty is on the septic system, that it is in good working order.

The appeal Judge commented:

· It is clear that the realtor simply assumed that, because the vendor indicated in the Seller Property Information Statement that she was not aware of certain problems, she was prepared to warrant that such problems did not exist.

· This he was not entitled to do.

· There is no evidence that the appellant ever agreed to such conditions.

· It is one thing to state that one is not aware of any problem with the water and quite another thing to warrant as a positive fact that there is no problem.

· The former case presupposes merely a state of ignorance on the part of the vendor, from which a potential purchaser may, perhaps, take some limited comfort.

· Absent fraud or wilful blindness, however, no liability attaches to stating the simple fact that one is not aware of any problem.

· In the latter case, however, one is stating positively the existence of a particular state of affairs and, by so doing, exposing oneself to liability if it should prove otherwise.

· Therefore, the mere fact that the vendor had indicated that she was unaware of any problems with the water or sewage systems is not to say that she was content to warrant that there were no such problems.

On this particular point the Court concluded:

"There is no term, or other reference whatsoever, concerning the water or the septic system "particularly set out" in the Listing Agreement. The two conditions were "other...terms" within the meaning of the agreement. That being said, according to the wording of the Listing Agreement, for the offer to be binding upon the appellant it was necessary that the other terms be "acceptable to [her]". Thus, on a plain reading of the two documents, in my view, it cannot fairly be said that the offer was the same as the Listing Agreement. As stated above, there was no evidence that these other terms were ever accepted by the vendor."

The Court dismissed the real estate agent's claim for commission for two reasons. The first was that the Offer was not the same as the listing. There was no confirmation contained in the SPIS that the vendor would include any specific warranties in the agreement. Further, on the facts it was also determined that the second offer was not truly "presented" to the vendor.

COMMENT:

It is noteworthy that the real estate agent took the position that anything contained in the SPIS must then be included in an offer. That's quite a peculiar position. Nevertheless, the real estate was successful at trial, which of course says something. However, the case was overturned on appeal.

This is a rather unanticipated use of the SPIS document. I'm sure that the vendor never thought that her own agent would be using it against her in a lawsuit.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Disclosure Statement Not Part of Agreement ~ Buyer left Without Remedy

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Tue, 10 Nov 2009 10:38:30 -0600

Disclosure Statement Not Part of Agreement ~ Buyer Left without Remedy

By Brian Madigan LL.B.

The Csada and Williams lawsuit is a case which involves the use of the Property Condition Statement in the Province of Saskatchewan pursuant to the terms of a residential agreement of purchase and sale.

Mr. and Mrs. Csada submitted an Offer to purchase certain residential premises owned by Mr. and Mrs. Williams in the City of Regina. The case was heard in the Provincial Small Claims Court in 2006.

The offer was subject to the following conditions:

1) gasoline location (no problems)

2) furnace inspection (favourable) at purchasers expense

3) property disclosure statement.

The Williams completed a Property Condition Disclosure Statement in which they said, in part, that they were not aware of any damage due to water. Then, the parties signed an amendment to the contract in which they agreed that the conditions quoted above are removed. In particular, the amendment stated:

"(3) Property condition statement (PCDS) is removed."

There are no warranties or guarantees stating that the house is free from any of the defects subsequently complained of by the Csadas. In short, based on those documents, the Csadas have contracted to buy the house on an "as is" basis.

So, the Court was left with the task of interpreting the PCS as it related to the agreement. Initially, there was a contract to sign a PCS. The PCS was then, signed and delivered to the Csadas. Subsequently, the parties signed an amendment to the agreement thereby deleting that provision.

The Court concluded:

"The property disclosure statement has no effect on the contract, and the parties are left with what they agreed to .... That agreement provides the Csadas with no remedy against the Williams for the expenses in relation to which they bring this action."

Recognizing that the decision might seem somewhat harsh the trial Judge offered the following advice:

"Home buyers, particularly first time home buyers,

1) frequently fall into the trap of spending too little time inspecting the home before making the decision to purchase,

2) rush into the purchase at a time when caution is of the utmost importance,

3) assume that mortgage appraisers will do a pre-purchase inspection when in fact they do not, and

4) enter into a contract containing provisions such as in clause 11 of this contract in which all of the risk shifts to them.

It is further unfortunate that the Csadas did not receive and follow advice to employ pre-purchase inspection experts, or require as a term of the contract guarantees as to conditions."

COMMENT:

Here the PCS was not part of the agreement. An amendment deleted it from the contract terms. Independently, other Courts have viewed the representations from tort principles and established liability. In this case, the strict rules of contract were applied.

It is obvious that in this case, the execution of the amendment deleting the conditions was in error, if the purchasers wished to have the PCS as part of the contract.

It might also be noted that this case was tried in Small Claims Court, and consequently larger liability issues were likely not raised due to the lack of time and resources. If the damages were higher, and the matter tried in a higher Court, it is much more likely that the plaintiff would have been successful.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Seller Responsible for Inaccurate Answers in Disclosure Statement

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Mon, 09 Nov 2009 20:42:36 -0600

Seller Responsible for Inaccurate Answers in Disclosure Statement

By Brian Madigan LL.B.

The case of Seaman and Phinney came on for trial in the Court of Queen's Bench in New Brunswick. It is another case based of a poorly completed Disclosure Statement.

A 10 year old septic tank and disposal field for a home overflowed through a "cheater pipe" into a ditch. The purchaser Mr. Seaman bought the home and noticed the out-flow approximately one month after moving in.

The defendants are the vendors of the home, Mr. and Mrs. Phinney. They had built the home and occupied it for 10 years. Mrs. Phinney had signed a Property Disclosure Statement. It was one of the papers relied on by Mr. Seaman when he agreed to buy.

Mrs. Phinney answered "No" to the question: "Are you aware of any problem with the septic system?"

The Judge stated:

"In her evidence Mrs. Phinney describes the care they took of the septic system and the views of her husband in these words:

... You don't do all your laundry at once, you space it out. I had a 'sudsaver' on my washing machine so that the water from the whites I could use to wash the dark clothes and, and he was always harping about the amount of toilet paper we would use and that, you know, it would block the septic system ... he'd notice the number of rolls in the garbage can I guess, empty rolls ... it was one of his fetishes...".

As noted on the Property Disclosure Statement Mrs. Phinney answered simply "No" to the question: "Are you aware of any problem with the septic system?".

In my opinion with her knowledge of the care taken of the septic system she would have been more accurate if she had said:

"No, but we are very careful to space out our laundry, to reuse washwater and to minimize our use of toilet paper".

I find that Mrs. Phinney's answer "No" was untrue. The evidence forces me to find that she misrepresented the condition of the septic system to Mr. Seaman on the Property Disclosure Statement.

Court Findings

· I find that Mrs. Phinney is liable to Mr. Seaman for her misrepresentation and breach of contract.

· As Mr. Phinney has benefited from his wife's misrepresentation, he is liable to Mr. Seaman as well.

· Damages were determined on the basis of the cost of early hookup to the municipal sewer system

Comment

This is just another example of how imporatnt it is to answer questions in the Disclsoure statement:

1) truthfully, and

2) accurately.

All too often, sellers are rather "cavalier" in the approach to the document. The answers are treated in a "best guess" manner.

It is noteworthy that the disclosure statement need not be completed at all, but if it is, the answers must be both truthful and accurate.

No comment was made by the trial Judge concerning the role of the real estate agents in the completion of the document.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Minor Disclosure Error Insufficient to Establish Liability

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Mon, 09 Nov 2009 15:34:17 -0600

Minor Disclosure Error Insufficient to Establish Liability

By Brian Madigan LL.B.

The Taschereau and Fuller lawsuit is a case concerning false representations in a Property Condition Statement (PCS). The purchaser Mr. Tashereau brought an action before the Court of Queen's Bench in Manitoba against the vendors of a residential property which he purchased. The vendors in turn took third party proceedings against their own agent for negligence concerning his advice related to the completion of the PCS

The PCS was completed by the vendors, the Fullers on 14 May 2001 and delivered to the purchasers on 17 May 2001.

Here was a question contained in the Form:

‘To your knowledge has there ever been any flooding or leakage affecting any portion of the property (into the house or garage or into low-lying areas of the yards or other part of the property) and from any cause or source (rainwater, snow melt, sewer backup or other cause or source)?'

to which it was indicated "yes" and the following handwritten answer added:
"Minor water seepage thru bsmt window during a heavy rain."

An Offer was submitted providing that the "seller's property condition statement would be incorporated into, and form part of, the contract". The offer was accepted on May 15, 2001.

Mr. Tashereau arranged to have the property inspected by his own home inspector. A note was made about a repair to the window wells in the basement to prevent water from the surface contacting with the wood.

The purchasers took possession on July 5, 2001. On July 16th, a substantial amount of rain fell and water leaked into the basement.

The plaintiffs' position at trial was that the comment in the seller's property condition statement that only minor water seepage had occurred through a window was inaccurate given the amount of leakage evidenced on July 16th.

The defendants' position is that the comment in the seller's property condition statement was inaccurate only as to the use of the singular rather than of the plural, and that in their experience, only minor water seepage had occurred through the windows at any time during their possession of the premises.

Once the parties have completed the transaction, the title has registered in the name of the purchasers and the purchase price has been paid to the vendors, the remedies available to an aggrieved party are severely limited.

The doctrine of merger is basically set forth in Anson and Honsberger, Real Property Law is as follows:

1. After closing, the doctrine of merger may apply.

2. The doctrine of merger is that, upon the completion of an agreement for the sale of land, the agreement and the parties' rights thereunder are merged in the deed of conveyance, so that after closing they can no longer rely on the terms of the contract, but must look to the deed for any remedy.

3. The purpose of the doctrine of merger is to bring finality and certainty to business affairs, as it would be unfair to allow a party to seek to set aside the transaction or to obtain damages for an indefinite period after closing.

4. It is the general rule that the acceptance of a deed is prima facie full execution of the agreement to convey, and preliminary agreements and understandings related to the sale of land become merged in the conveyance.

5. The doctrine of merger does not apply to independent covenants or collateral stipulations in an agreement of sale.

6. Where the agreement of sale creates rights or imposes obligations or stipulations collateral to or independent of the conveyance, the question of whether those stipulations are extinguished by merger is one of intention.

7. The proper inquiry should be to determine whether the facts disclose a common intention to merge the warranty in the deed; absent proof of such intention, there is no merger.

8. The exceptions to the doctrine of merger are as follows:

(i) fraudulent misrepresentation;

(ii) mutual mistake resulting in a total failure of consideration or a deficiency in the land conveyed amounting to error in substantialibus;

(iii) a contractual condition; or

(iv) a warranty collateral to the contract which survives the closing (as referred to above).

The trial Judge commented as follows:

"As a result, the doctrine of merger will apply to the comment unless it falls within any of the exceptions:

(a) fraudulent misrepresentation:

I accept Mr. Fuller's evidence that he did not deliberately intend to mislead. I believe that he was being truthful. He indicated that while there had been some seepage in the basement, there was nothing that he would have considered of a major issue. Furthermore, I accept his evidence that he did not deliberately attempt to mislead by the fact that the comment refers to the word "window", and not "windows".

(b) error in substantialibus:

Even if there was an error as to the reference of a "window" as opposed to "windows", I do not see this error as one of substance or as one that would change the substance of the subject matter of the contract. There is no indication that the vendors took steps to hide the problems caused by the water seepage. In fact, the purchasers' home inspector noted them. While the inspector did not note the larger problem found in the wall behind the boxes, there is no indication that the boxes were laid in such a way as to prevent the wall from being viewed. In fact, Mr. Fuller readily agreed to move boxes on another occasion to allow the view of the attic. Had he been asked to do the same in the basement, there is no indication that he would not have agreed. Furthermore, according to the purchasers' own expert, it would appear that the problem can be remedied fairly simply. In his view, the problem is with the window wells and not with the foundation. It can be remedied by a simple alternative procedure rather than by an expensive one, which the purchasers propose.

(c) contractual condition:

There are no conditions in the contract that would entitle the purchasers to recover damages.

(d) collateral warranty:

As I have indicated, I do not find that the representation amounted to a collateral warranty.

In summary, I find that the principle of caveat emptor does apply."

Accordingly, the purchasers case was dismissed and it was not necessary to consider to the merits of the third party proceedings.

COMMENT:

This particular case was determined on the basis of basic real property law and contract law. This involves the strict application of traditional legal principles to the case.

Other cases, where liability is found, the determining factors will be misrepresentation and the law of deceit in accordance with basic tort principles. When viewed from a vendor's perspective, traditional real estate and contract law provide the greatest level of protection. It is tort law which essentially opens up the opportunity for increased liability.

It should be noted that most other cases have not followed this very traditional approach.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Agent Liable for Poor Advice on Signing Disclosure Statement

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Mon, 09 Nov 2009 11:23:14 -0600

Agent Liable for Poor Advice on Signing Disclosure Statement

By Brian Madigan LL.B.

The Bond and Richardson lawsuit is a case in the province of New Brunswick involving the use of the Property Condition Statement and the liability of the agent who assisted the vendor in the completion of the document.

The case is interesting from a procedural perspective. Mr. Bond purchased a property which was subject to certain deferred taxes under the Farm Lands identification Program (FLIP). If Mr. Bond changed the use of the property, these deferred taxes would become payable.

So, he sued his own lawyer Ms. Richardson, for negligence. His lawyer then sued the vendor for improperly completing the Property Condition Statement. The vendor then sued his own agent for improper advice concerning the completion of the document. All matters were heard in one proceeding.

The purchaser grew up on the property which is the subject of the sale. His family sold the property in 1975 and he saw it advertised in 2003. He contacted the agent, Paul Langlais who agreed to act in a dual agency capacity for purchaser and the vendors, Mr. and Mrs. Kerr.

The FLIP program is designed to keep property as farming lands. If the use changes, the owner is responsible for the current taxes and 15 years of deferred taxes. Mr. Bond wishes to use some of the lands for a commercial auction which is his business. This change in use would trigger 15 years of back taxes. In the interim, Mr. Bond leased out the land for farming.

Liability of the Purchaser's solicitor

The Court concluded that the purchaser's solicitor had failed to properly check the taxes prior to closing and this constituted negligence. Mr. Bond has suffered damages as a result of that negligence in that he is restricted in the use he can make of his property without incurring a cost and, by her failure to advise him of the deferred taxes, Ms. Richardson deprived him of the opportunity to reduce, eliminate or even negotiate those costs prior to closing.

Liability of the Vendors

There is also the matter of the vendor's liability, since the purchaser's solicitor claimed over as against them.

James Kerr, the vendor testified that he and his wife lived on the property for 15 years. It was registered in the FLIP when they bought it in 1988 and it was still in the program when they sold it in 2003. He regarded it as a tax break. He testified that all he knew about the program was that it resulted in lower taxes for him and that he was not aware that he would have to pay taxes back if the use of the property changed. He further testified that at the time of the sale to Mr. Bond he was not aware that Mr. Bond may have to pay the deferred taxes.

As part of the agreement, the vendors agreed to sign a Property Condition Statement.

In the first section of the Property Condition Statement, which deals with general information about the property, the vendors answered "no" to the following two questions:

4. Are you aware of or have you been charged any local improvement levies/charges?

5. Have you received any other notice or claim affecting the property from any person or public body?

The trial Judge said " the purpose of that Statement is disclosure. If they didn't have a duty to answer the questions both honestly and accurately that purpose would be defeated and the Statement would be meaningless."

And, the Judge made the following comment:

"It is clear......, James and Carole Kerr, made misrepresentations to Mr. Bond when they completed the Property Condition Statement. Mr. Kerr was aware of the FLIP taxes and while he regarded them as a benefit as opposed to an encumbrance, that did not excuse him from disclosing their existence, particularly when he answered the questions on the Property Condition Statement about whether or not he had received any notices from a public body affecting the property and whether or not the property was under the jurisdiction of any Conservation Authority. Both of those answers were clearly wrong and Mr. Kerr knew or ought to have known they were wrong since he knew from the time they bought the property that it was registered in the FLIP and he executed a document in 1997 in which he opted to continue to have the property registered in the FLIP."

The trial Judge determined that there was no intention to deceive, it was an oversight. So, even though there was no finding of fraud, there was still a negligent statement. This statement met the 5 part test set out by the Supreme Court of Canada in Queen and Cognos to establish liability.

The Judge also commented that there was a special relationship between the parties, that is, they were negotiating an agreement, and that gave rise to a positive duty to provide honest and accurate answers:

"The representor's belief in the truth of his or her representations is irrelevant to the standard of care."

On the issue of the completion of the PCS, the Judge observed the following:

"In my view, if Mr. Kerr, in completing the Property Condition Statement, had given some thought to those questions he answered incorrectly, it is more likely than not that he would have realized that the FLIP should be disclosed in answering them.

I find that he did not exercise the care that an objective, reasonable person would have exercised in order to ensure the answers he gave were accurate and he was therefore negligent.

Mrs. Kerr was also negligent because she merely relied on the answers given by Mr. Kerr in signing the statement and made no effort on her own to ensure that the answers were accurate."

Liability of the Real Estate Agent

Paul Langlais had only been an agent for 2 years when he came across this situation. He was unfamiliar with farm properties, and although he obtained a tax statement referring to the FLIP, he knew nothing of the program or its deferred tax provisions.

The Court concluded:

· By failing to make himself and his clients aware of this essential and pertinent fact in a timely manner I find that Mr. Langlais failed to write the agreement in compliance with Article 6 of the Standards as it is not clear and understandable because it does not set out whose obligation it is to pay the deferred taxes.

· It follows, and I find, that Mr. Langlais failed to comply with the standard of care required of a realtor as set out in the Canadian Real Estate Association's Standards of Business Practice and thereby breached the duty he owed to Mr. Bond.

· I further find that Mr. Bond has sustained damages as a result of that breach. It follows, and I find, that Mr. Langlais was negligent.

Accordingly, the Court awarded a judgment in favour of the full amount of the deferred taxes to the purchaser. On the third party claim, the purchaser's solicitor was entitled to claim two thirds from the vendors and the real estate agent, the result being that the solicitor, the vendors and the vendors' agent each bore one third of the loss.

COMMENT:

This case again stresses the importance of the PCS. Be careful, when you arte providing responses. If you are a real estate agent, you must counsel your client in terms of its execution. And, the mere fact the purchaser's lawyer made a mistake was not enough to relieve the vendors or the real estate agent from liability.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Half-Truth by Seller Leads to Liability

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Mon, 09 Nov 2009 09:53:31 -0600

Half-Truth by Seller Leads to Liability

By Brian Madigan LL.B.

The lawsuit Alevizos and Nirula is another Property Condition Disclosure Statement case. This case came before the Manitoba Court of Appeal for consideration in 2003. It is the highest Court yet to discuss this document, since no cases have reached the Supreme Court of Canada.

The comments made by the Justices are noteworthy. Originally, this was a claim that was heard in Small claims Court due to the monetary size of the dispute, but under appeal it was considered sufficiently important for the Court of Appeal to offer some guidance.

The Alevizos purchased from the Nirulas a substantial home in the Tuxedo area in Winnipeg. During the initial negotiations, and after a first offer to purchase had been made, a request was made by the purchasers for the vendors to complete a PCS. Mr. Alevizos had noticed a gap in a window and had expressed a concern to his real estate agent who in turn suggested that a PCS be obtained from the vendors.

Pertinent for our purposes is question H and the answer noted directly underneath:

"To your knowledge has there ever been any flooding or leakage affecting any portion of the property (into the house or garage or into low-lying areas of the yards or other part of the property) and from any cause or source (rainwater, snow melt, sewer backup or other cause or source)?

[Answer] Exterior water tap froze and broke - caused some flooding in the rec rm. - thus all doors, flooring & carpeting, & lower 3 ft. of all walls replaced 1998."

But a frozen water tap was not what the purchasers were worried about. Rather, their concern was about the potential difficulties with some of the windows.

Analysis by the Court:

· There can be no doubt that caveat emptor is alive and well.

· mere silence without more on the part of the vendor with respect to a defect subsequently discovered by a purchaser will not normally found a cause of action against the vendor by the purchaser for misrepresentation or for fraud.

· A distinction must be made between a failure to disclose which in effect renders what has been stated a misrepresentation, and a failure to disclose which leaves anything said or written as true, but results in some misconceptions since the whole truth has not been told. The former kind of non-disclosure if fraudulent is fraudulent misrepresentation.

· A half a truth will sometimes amount to a real falsehood

· A representation might be literally true but practically false, not because of what it said, but because of what it left unsaid. In short, because of what it implied. This is as true of an innocent misrepresentation as it is of a fraudulent misrepresentation.

· To state a thing which is true only with qualifications or additions known to, but studiously withheld by, the representor, is to say the thing which is not. Such a statement is a "lie", and one of the most dangerous and insidious forms of lie.

· Any active concealment by the vendor of defects which otherwise would be patent is treated as fraudulent, and the contract is voidable by the purchaser if he has been deceived by it. Any conduct calculated to mislead a purchaser or lull his suspicions with regard to a defect known to the vendor has the same effect.

· The purpose of active concealment, of course, is to make latent that which would otherwise be patent.

· Where there is an active concealment of an otherwise patent defect, the general rule of caveat emptor will not apply.

· .... the question is whether the Mr. Nirula deliberately omitted to say something which was required to render completely true his response to question numbered H on the PCS, namely, whether there had "ever been any flooding or leakage affecting any portion of the property."

· Assuming the statement made by Mr. Nirula about the frozen water tap as far as it went was true, does it also represent a positive statement that no other leakage occurred?

· Viewed in this way, confirmation that the frozen water tap was the only leakage is a fraudulent misrepresentation within the classic definition contained in Peek, earlier referred to, since, "the withholding of that which is not stated makes that which is stated absolutely false". (Derry and Peek)

· ....the misrepresentation, .... runs afoul of yet another exception to caveat emptor, namely, because there was a duty to disclose such a material fact pursuant to the terms of the PCS document itself? In addition to the nature of a contract (uberrimae fidei for example), such a duty may arise "from circumstances which occur during the negotiation".

· ..... a contracting party who is entitled to remain silent once the decision is made to say anything at all during negotiations on a particular subject that is relevant "must say everything, that is, everything material to the topic in question; by breaking silence, he impliedly ‘undertakes' a duty which otherwise the law would not have prescribed".

· by speaking there is an implied undertaking in the circumstances to speak fully.

· The vendors' response was not merely a "half truth," it was a positive falsehood. Once the vendors voluntarily undertook to complete the PCS, they were obliged - indeed they were under a duty "in the circumstances" - to do so honestly and completely. This they did not do.

The Court on The PCS itself:

· Declarations made in a PCS are representations as opposed to terms of the contract.

· Such statements do not constitute a warranty, rather the purpose of a PCS is to put purchasers on notice, to make purchasers aware of a problem if there is one.

· Since the purpose of the PCS is to give the purchasers a "heads up" with respect to potential problems, liability will ordinarily be disallowed when the problem in question is obvious. This is because purchasers in such circumstances should not have been misled by the disclosure statement.

· If the vendor answers the PCS honestly and does not deliberately intend to mislead, then liability will not follow even if the representation turns out to be inaccurate

· Based on the experience of those provinces that have employed the PCS, it seems to present a ripe ground for litigation. Doubtless this is due in no small measure to the problems inherent in an informal "fill in the blank" form which can have such serious legal consequences when problems subsequently develop in a real estate transaction. The wisdom of maintaining in use a form fraught with such inherent difficulties, exacerbated by the conflicting statements within the form concerning its purpose and effect, should be addressed by lawyers and real estate agents alike.

Mr. Justice Kroft, another Justice of the Court of Appeal offered his own comments about the use of the PCS:

· "My purpose in writing these brief separate reasons is to emphasize an aspect of this case which should be of particular interest to members of the public who are buyers or sellers of homes and to the agents and lawyers who represent them. I am referring to the risks, well demonstrated here, which are inherent in the recently introduced "form" document described as a property condition statement or PCS.

· The Chief Justice, in paragraph 36 of his judgment, sets forth five "general statements" which describe the nature of the PCS. He explains both the intent and the difficulties related to its use. In his fifth statement, he observes that based on the experience of other provinces, the form creates "a ripe ground for litigation." He attributes at least part of the problem as being due to the frailties of a practice which encourages important representations about the condition of real property to be asked and answered on a short pre-printed form comprised of standard questions and answers which are given by filling in boxes and blanks.

· This judgment should, in my view, be taken as a warning about the routine use of the PCS. The purchase and sale of a home is for many people the most significant business transaction they will ever enter into. Representations as to the condition of the property are inevitably going to be requested and given. I do not believe that these concerns are ever going to be safely dealt with by filling in the blanks on a short form carried in the real estate agent's briefcase with his or her other supplies.

· It is my concern that the use of the PCS is likely to increase the number of disputes in circumstances similar to those which existed here. That view causes me to emphasize the suggestion of Chief Justice Scott that the continued use of the PCS "should be addressed by lawyers and real estate agents alike." A more careful and traditional way of making important representations about the condition of property is surely better than incurring the risk of costly and uncertain litigation."

COMMENT:

So, you might wonder whether to use this document at all? The Court emphasized that should the vendor choose to answer the document which was otherwise voluntary, then there were certain conditions and limitations placed upon the vendor in terms of responses.

No half truths, no concealments. There was now a duty to be fully forthright and provide detailed and accurate answers. Anything that might trick a purchaser is a deceit. Answering questions in a clever way is really not allowed. That is just a little too "cute".

Adding additional information is sometimes distracting and is intended to placate the purchaser into the false belief that full and complete disclosure has been provided, when really it's just a "curve ball" calculated to deceive.

Remember... "the truth, the Whole truth, and NOTHING but the truth!

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

False Disclosure Statements and Family Court Issues

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sun, 08 Nov 2009 11:24:59 -0600

False Disclosure Statements and Family Court Issues

By Brian Madigan LL.B.

The Zadegan and Zadegan matter is a very unusual case involving the use of a Seller Property Information Statement. Actually, the SPIS formed part of the evidence in a contempt of court matter in Superior Court of Justice (Family Division) before Justice Mackinnon in Ottawa in October 2003.

Briefly, the Zadegans were involved in a series of legal proceedings that arose out of the breakup of their marriage. Issues of child support, the division of net family property and the sale of the family home were brought before the Court and resulted in a number of Court Orders.

The Court directed that the family home be sold. Mrs. Zadegan occupied the house with the children and she was basically opposed to the sale. It appeared that she did everything in her power to frustrate the potential sale.

She refused to appoint a real estate agent, but finally did so when threatened with another court application; she refused signs in the neighbourhood, she refused showings unless they were very convenient to her schedule. All in all she was quite uncooperative.

The matter came on for hearing to determine whether or not she was in contempt of Court, for it was the Court which had ordered the sale of the house. This was not simply a request by her husband.

Mrs. Zadegan took the position that the property was unsaleable. There were leaks in the basement which would cost $20,000 to repair and she didn't have the money to do those repairs. She took the property off the market and failed to lower the price into the range that had been established in the proceedings. The failure to sell suited her own convenience since she continued to occupy the premises in the meantime. The more she could do to thwart the sale the better.

Obviously, in determining whether she was in contempt of Court, her credibility and her motivation were factors that were taken into consideration.

Court Review

Here is the review by the Court of the execution of the Seller Property Information Statement signed by Mrs. Zadegan:

"[39] Exhibit 13 is the Ontario Real Estate Association Seller Property Information Statement that was completed and signed by Mrs. Zadegan on 1 November 2002 with respect to 1667 Marronier Court. The instructions state that the answers must be complete and accurate for the purpose of establishing that correct information is being provided to buyers. In completing the form, Mrs. Zadegan noted two problems with flooding in the basement: one caused by an outside pipe rupturing, which was repaired in December 2001 by adding a second sump pump; and, the second caused by the float in the sump pump being burnt and replaced on 28 October 2002.

[40] In cross-examination, it was suggested to her that this information was quite different from that set out in her affidavit filed in the present proceedings. She was asked these questions and gave these answers:

Q. Okay, so would you agree with me that by the time you wrote this on November 1st, 2002, what happened was:
1) a ruptured outside pipe and
2) a burnt sump pump.
A. These were two occasions that happened, yes.
Q. Were there more?
A. And there were much more.
Q. There were much more?
A. Yeah, the builder said to me if we write that down...
Q. I don't want to know what the builder said to you.
A. Okay.
Q. That's hearsay.
A. Okay, I tell you that if I put everything down there, I could not sell the house at that price. I didn't mention all of them, I just said this and I thought the problem was solved but it's not solved.
. . .
Q. You just admitted that this document may not be quite true.
A. There was a small amount of water there, I wasn't going to tell people that this house has problems, not to get the fair amount of price for it.

[41] Thus, there are many contradictions in Mrs. Zadegan's evidence with respect to the water problem in the basement. These contradictions affect her credibility."

Significance of SPIS

Please note that Mrs. Zadegan said about the SPIS: "....I wasn't going to tell people that this house has problems, not to get the fair amount of price for it." Clearly, she lied, and she was prepared to lie in order to get her way.

Court Decision

As you probably can imagine, the trial Judge concluded that she was in contempt of Court.

COMMENT:

This is a rather new and novel use of the SPIS. If you decide to make false statements, it is not only the purchaser who may sue you. These same false statements can effect your credibility in other legal proceedings. Basically, it's just the same as if the statements were sworn under oath. While, there was no criminal charge of perjury, there was a finding of contempt of Court in a civil matter, which still can result in sentencing and confinement.

This raises a new level of obligations for real estate agents. You may have to point out risks associated with the completion of the SPIS that go beyond potential liability to the prospective purchaser.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

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· I find that Mrs. Phinney is liable to Mr. Seaman for her misrepresentation and breach of contract.

· As Mr. Phinney has benefited from his wife's misrepresentation, he is liable to Mr. Seaman as well.

· Damages were determined on the basis of the cost of early hookup to the municipal sewer system

No comment was made by the trial Judge concerning the role of the real estate agents in the completion of the document.Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty905-796-8888www.OntarioRealEstateSource.com

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No comment was made by the trial Judge concerning the role of the real estate agents in the completion of the document.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com