Brian's Ontario Real Estate Blog

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

SPIS ~ Statement Fails to Disclose Material Easement

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sat, 07 Nov 2009 17:57:30 -0600

SPIS ~ Statement Fails to Disclose Material Easement

By Brian Madigan LL.B.

The Macdonald and Robson matter was an application in the Superior Court of Justice of Ontario for an order rescinding an agreement of purchase and sale.

The purchaser Mr. Macdonald had submitted an offer to acquire certain property owned by the vendor Robson. The transaction was to close on 28 April 2008 and the matter proceeded to Court 3 days before closing.

The property comprised 2 acres of rather picturesque property backing onto conservation lands in Flamborough, Ontario.

As it turned out, there was an easement in favour of the Township over one half of one acre or 25% of the property.

The vendor had completed a Seller Property Information Statement (SPIS) indicating:

"in response to a question inquiring whether there were any easements, the answer given was "unknown, on survey".

In another question asking if the survey showed the location of all easements, the response was "yes, written location of sunroom".

A survey was produced ......, but it made no reference to any easements."

The motions Court Judge said:

"There was no suggestion that the vendor's were aware of the existence of the easement or that any misrepresentation was made. Rather, the vendor's argument before me was that the existence of the easement did not materially affect the purchaser's use of the property, principally because there are other areas on the property where Mr. Macdonald would be permitted to build his drive shed and other structures. The respondent relies on the decision of Stefanovska v. Kok reflex, (1990), 73 O.R. (2nd) 368, arguing that Ms. Robson, the vendor can convey substantially what Mr. Macdonald contracted to get.

Justice Forestell in Ridgely v. Nielson, [2007] O.J. No. 1699, noted that there are four factors to be considered in determining whether an easement is material:

1) the location of it;

2) the size of the easement;

3) the point of access; and

4) the owner's enjoyment of the property."

Consequently, the Court determined that the purchaser was entitled to rescind the agreement.

COMMENT:

Although there was a SPIS completed in this case and although it was incorrect, the decision of the motions Court Judge was made on the basis of contract alone.

In all likelihood, should the matter of misrepresentation have been made an issue, then the Court would probably have directed the trial of an issue. The important matter to bear in mind in this case, is the issue of costs. Such a proceeding would have been substantially more costly than an application in motions Court. In this case, the Judge saved both litigants some expense, by disposing of the matter summarily.

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

Active Concealment of Damage Eliminates "Caveat Emptor"

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sat, 07 Nov 2009 17:26:21 -0600

Active Concealment of Damage Eliminates "Caveat Emptor"

By Brian Madigan LL.B.

Mr. and Mrs. Whaley purchased a small house from the vendors Mr. and Mrs. Dennis in 2002 . The property was located in the Niagara Peninsula and was intended to be the retirement home of the purchasers.

The case of Whaley vs. Dennis came on for trial in the Superior Court of Justice in October 2005 before the Honourable Mr. Justice Quinn. A matters in issue were false statements made pursuant to the Seller property Information Statement.

Mr. and Mrs. Dennis purchased this property in 2002. They decided to list the property for sale and in that connection executed a Seller Property Information Statement.

Earlier, in the Summer of 2001, Mr. Dennis obtained two quotations for work to the septic system. He retained one company to dig a trench but not complete the connection. He decided to do this himself, because otherwise he would require a permit. Also, Mr. Dennis constructed some drywall in the basement.

Specifically, they made certain representations which are the subject of this lawsuit:

"Are you aware of any problems with the septic system?" Answer, "Unknown."

"Are you aware of any moisture and/or water problems in the basement or crawl space?" Answer, "No."

An agreement of purchase and sale was executed and was conditional upon both a home inspection report and a septic inspection satisfactory to the purchasers.

The trial Judge stated:

"The plaintiffs waived the conditions in the agreement of purchase and sale regarding both the home inspection and the septic tank inspection. I was never told why. In respect of the latter, which had not yet been carried out, it certainly was an unwise move and probably prompted by the realtor representing the plaintiffs. I doubt whether the plaintiffs understood what they were doing. However, by executing the waiver, I conclude that the plaintiffs cannot be said to have relied on the septic-system inspection in deciding to complete their purchase of the Property."

The Spring of 2003 was the first wet season encountered by the plaintiffs at the Property. They began experiencing a strong odour of sewage. In addition, the basement flooded. The leakage (or most of it, at least) seemed to originate from the front side of the house as opposed to the rear where the septic tank was situated. It was the testimony of Mr. Dennis that, while he and his wife owned the property, they did not experience moisture in the basement.

During the exterior remedial work subsequently carried out by Robson (the purchasers' contractor) a crack was discovered in the front basement wall about one-quarter inch in width. Robson testified that the crack seemed to be an old one: it was discoloured and had a growth of moss. When Mr. and Mrs. Dennis purchased the Property they removed the existing drywall in the basement and replaced it with new drywall. The crack would have been visible to them then and they concealed it with the new drywall. It is also curious that, while they occupied the property, Mr. and Mrs. Dennis did not place coverings of any kind on the basement floor and they did not use the basement as a living area. In a home having less than 700 square feet of living space, would they not occupy the basement, if it were habitable?

The seriousness of the sewage-system failure is abundantly clear from the fact that, following the inspection by Murray on May 2nd, Regional Niagara Public Health Department issued an order to the plaintiffs regarding sewage escaping "from your sewage system or septic tank onto the ground or into a water source."

The relevant parts of the order state: "....immediately stop the discharge of sewage escaping onto the surface of the ground."

Discussion by the Court

"patent and latent defects

[19] There can be no question that the problems with the septic system and the basement are defects. But, are they patent or latent defects?

[20] A latent defect is "some fault which one would not expect an ordinary purchaser to discover during a routine inspection"

[21] A patent defect is "something which an unsophisticated purchaser can discover on cursory inspection"

[22] Whether a purchaser should be taken to have been aware of a defect involves the application of an objective test.

[23] The defect in the septic system at bar is a latent defect. If it was not noticed by [the septic system inspector], it certainly is not something the plaintiffs would be expected to discover during a routine inspection of the Property.

[24] Where a vendor actively conceals a latent defect he or she can take no protection from the doctrine of caveat emptor ("let the buyer beware") and the purchaser is entitled to sue for rescission or damages. In other words, a latent defect known to a vendor must be disclosed to a purchaser.

[25] On behalf of Mr. and Mrs. Dennis, it is argued that the answer "Unknown" recorded on the Seller Property Information Statement should have put the plaintiffs, or at least their realtor, on notice to the possibility of septic-system problems. I respectfully disagree. At the time, had the plaintiffs inquired of Mr. and Mrs. Dennis, it is likely (based on the testimony of Mr. Dennis) that the conversation would have gone something like this:

Plaintiffs: We notice that you checked ‘Unknown' in response to the question ‘Are you aware of any problems with the septic system?' What does that mean?

Mr. and Mrs. Dennis: Well, the septic system is very old, 40 years old in fact, and we do not know what condition it is in.

Plaintiffs: But, you were not asked to describe the condition of the system. The question relates to ‘problems with the septic system.' So, will you say whether, during the time that you have lived on the Property, you experienced any problems with the septic system? You would know that, correct?

Mr. and Mrs. Dennis: Yes, we would. And, during the time that we have lived here, we have not had any problems with the septic system.

Therefore, it is somewhat Machiavellian to suggest that the plaintiffs should have used the answer "Unknown" as a basis for further inquiry of Mr. and Mrs. Dennis.

[26] As I am persuaded by the evidence of Giroux and Zwierschke that Mr. Dennis (and, undoubtedly, Mrs. Dennis, as well) knew the septic system was defective, I easily find that those defendants actively concealed the existence of the defect by not bringing it to the attention of the plaintiffs. Therefore, Mr. and Mrs. Dennis are liable to the plaintiffs for their septic-system damages.

[27] Regarding the basement leak, I also find that it would not have been discoverable by the plaintiffs during a routine inspection of the Property. It was actively concealed behind the drywall installed by Mr. and Mrs. Dennis."

Consequently, the trial judge found in favour of the purchasers and awarded damages against in the vendors for misrepresentation.

COMMENT:

This is a case involving actual concealment of known problems. To say "no" to the septic system issues when the vendor had sought to repair the system does not make any sense. Further to say "unknown" when the vendors concealed the water leak by drywall also causes problems. The statement "unknown" is a further act of concealment.

A substantial difficulty for vendors and septic systems is often that the same contractors will be called by the purchasers later on to repair a problem. Invariably, they will say, "we've been here before..... there were all kinds of problems.... the vendors decided it was too expensive to repair".

That kind of response is very difficult to disprove and offers the very best evidence for a plaintiff. When there is clear evidence of deliberate false statements the Court will take steps to ensure that the plaintiff is compensated.

You will note the fabricated conversation between the parties that was speculated by the Court. Obviously, if the trial Judge feels that way, about the vendors' conduct, then they are going to be found responsible.

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

Insurance Backs Up Disclosure Statements

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Thu, 05 Nov 2009 15:10:34 -0600

Insurance Backs Up Disclosure Statements

By Brian Madigan LL.B.

The Miersma and Pembridge case was an application brought in October 2005 before the Superior Court of Justice of Ontario to determine whether a policy of insurance covered a false statement under a Seller Property Information Statement (SPIS) pursuant to an agreement of purchase and sale.

Mr. and Mrs. Pinkerton bought certain property in Picton, Ontario from Mr. and Mrs. Miersma. Pursuant to that agreement, there was a SPIS which included representations alleged to be false concerning a septic system and an underground storage tank.

The purchasers sued the vendors for false representations in the SPIS, both in contract and tort. Upon receipt of the claim, the vendors reported the matter to their insurer, Pembridge Insurance Company. The insurer took the position that the insurance policy did not cover this claim, since it was a claim in contract.

The purpose of this application was to determine whether the insurer had a "duty to defend" under the insurance policy. The actual merits of the lawsuit are not in question, just the issue of coverage under the policy.

The Court observed:

The duty of a liability insurer to defend will be triggered if, on a reasonable reading of the pleadings, they allege facts, which, if true, would require the insurer to indemnify the insured for the claim.

The mere possibility that a claim falling within the policy may succeed will suffice.

In its decision in BG Checo International Ltd. v. British Columbia Hydro and Power Authority, 1993 CanLII 145 (S.C.C.), [1993] 1 S.C.R. 12, the Supreme Court of Canada stated that where a given wrong prima facie supports an action in contract and in tort, the party may sue in either or both, subject to any limit the parties themselves have placed on that right by their contract.

The statement of claim:

The particulars of the negligence pleaded against the defendants are as follows:

(a) they represented that they did not know of any underground fuel oil storage tank when they had themselves disconnected the tank some years previously and left it in the ground;

(b) they represented that the septic system was constructed in conformity with applicable laws and was in good working order when they knew or ought to have known that there was an unlawful effluent line allowing leachate to move into the Bay of Quinte;

(c) they represented that all environmental laws and regulations had been complied with when they knew or ought to have known that they had not complied with the shutdown and removal requirements relating to the underground fuel oil storage tank in accordance with the provisions of the Technical Standards and Safety Act 2000;

(d) they represented to the best of their knowledge no hazardous condition or substance existed on the premises when they knew or ought to have known that their failure to properly decommission and remove the underground fuel oil storage tank left a hazardous condition or substance on the land.

Further, and in the alternative, the plaintiffs state that the defendants are liable for damages for breach of contract by reason of the breach of the express warranties contained in the Agreement of Purchase and Sale.

Decision of the Court

"In my view, the present case is similar to that in BG Checo, supra, where the court held that a pre-contractual representation which becomes a contractual term could found liability in negligent misrepresentation. This is the situation referred to in BG Checo where it was held that the duty in contract and the common law duty in tort are co-extensive."

COMMENT:

This imposes an additional burden upon insurers if they are to provide insurance coverage for this type of claim. You might quickly see that general homeowners' liability policies will soon begin to exclude coverage for this type of claim. You might be able to purchase it, but you will have to buy it and pay a premium related to its risk.

The case is important because it means that the vendor will have money to pay any judgment. Why? There's insurance! Also, the proceedings will become somewhat more costly. Why? There's insurance, and a professional litigant will incur greater expense. Further, a lawsuit like this is more likely. Why? There's insurance! The first insurer pays the loss to the purchaser. It then determines whether it can sue anyone to recover. Now, it can sue the vendor for negligent statements under the SPIS. So, it initiates proceedings, and just hopes that it is not also the insurer for the vendors.

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

Detrimental Reliance Necessary ~ False Disclosure Insufficient for Liability

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Thu, 05 Nov 2009 10:00:15 -0600

Detrimental Reliance Necessary ~ False SPIS Insufficient for Liability

By Brian Madigan LL.B.

The Riley and Langfield lawsuit is another interesting Seller Property Information Statement (SPIS) case.

The purchasers sought to recover damages in the Superior Court of Justice of Ontario for fraudulent and negligent misrepresentations made by the vendors concerning their property.

The Langfileds purchased a rural property in Tavistock in 1997 and decided to list it for sale in 2003. As part of the listing they executed a Seller Property Information Statement.

The Rileys submitted an Offer on 31 December 2003 and the transaction was closed on 1 April 2004. Subsequently, they found a number of difficulties concerning the operation of several chattels, a crack in the swimming pool, an abandoned well on the property and a water leak in the basement. To say the least, they were extremely disappointed.

The agreement was not conditional upon the purchasers obtaining a satisfactory building inspection report, which is a common provision with respect to re-sale homes. Ms. Riley was aware such an inspection could have been obtained and understood it was their responsibility to inspect. The purchasers' agent, Mr. Korchensky was not asked to explain the absence of an inspection report condition.

In fact, the SPIS document completed by the vendors was reviewed with the purchasers by their agent before an Offer on the property was prepared.

Here are some of the relevant responses provided:

"STRUCTURAL:

7. Are you aware of any moisture and/or water problems in the basement or crawl space? YES

16. Is there a home inspection report available? Date of report. NO"

The purchasers attended at the premises and were guided through by Mr. Langfield. There was some discussion of the presence of water in the basement and Mr. Langfield had constructed a trench and installed a sump pump to alleviate the problem. He described the basement as being "dry as a bone", to the Rileys and their agent.

The entire attendance at the premises lasted the duration of one hour, and about twenty minutes were spent in the basement itself. The purchasers were aware of the SPIS, and were aware of the water problem before they submitted an Offer. They were also aware of their right to obtain an inspection of the property.

Following the closing, there was extensive water flooding in the basement, and repairs were required both inside the home and outside in respect to the foundation.

The Rileys allege they were induced into the agreement by the fraudulent misrepresentations of Mr. Langfield. According to the Trial Judge in order to succeed, the Rileys must establish:

(a) the representations were made by Mr. Langfield;

(b) the representations were false;

(c) Mr. Langfield knew the representations were false or such were recklessly made without caring;

(d) the representations did, in fact, induce the Rileys to enter into the agreement to their prejudice.

According to the trial Judge:

"As the basis of the claim is fraudulent or negligent misrepresentation, the plaintiffs must establish statements attributed to Mr. Langfield were false, inaccurate or misleading. In essence, a pre-existing problem is a necessary finding. This is particularly the case when there is disclosure in the SPIS and observations of the plaintiffs as to some water issues. There can be no dispute, water has been present in the basement in the past. Indeed, such is hardly unexpected in an older, rural residence. The claim, however, is for something much greater and is said to be flooding."

And, further,

"[114] .... As the basis of the claim is fraudulent or negligent misrepresentation, the plaintiffs must establish statements attributed to Mr. Langfield were false, inaccurate or misleading. In essence, a pre-existing problem is a necessary finding. This is particularly the case when there is disclosure in the SPIS and observations of the plaintiffs as to some water issues.

[115] I am satisfied Mr. Langfield made the comment "dry as a bone" with reference to the basement. Such a statement cannot be considered "mere trade puffery" ..... However, the statement must be considered within the context in which it was made. In this regard, observations of the Rileys, disclosure in the SPIS and other comments of Mr. Langfield are relevant.

[116] The starting point is the Rileys' inspection of the property, of which only twenty minutes was spent in the basement. It is difficult to understand how or why a purchaser would contemplate an investment of $184,900.00 after only one visit to the property. More perplexing is that their realtor allowed or, perhaps, encouraged the Rileys to submit an offer to purchase without a further viewing of the property. The SPIS was ignored. A professional home inspection was not requested.

[117] During this limited viewing, the Rileys observed several water problems, including water stains on the recreation room wall and the fruit cellar floor. There was a sump pump in the laundry room. The Rileys knew its purpose was to pump water to the outside of the residence. The sump pump and trenching in the shop was not seen. Mr. Riley was informed of water issues at the rear of the house under the deck which was adjacent to the shop.

[118] At the very least, this limited viewing should have resulted in further inquiry and a more detailed inspection. In this regard, both realtors acknowledged an examination for water or moisture is common practice in older homes.

[119] The SPIS disclosed "moisture and/or water problems in the basement". I agree with the criticism of such a form as stated by Scott C.J. and Kroft J.A. in Alevizos v. Nirula, supra. Nevertheless, such disclosure is, in essence, a warning to a purchaser that should not be ignored. The SPIS was provided to the Rileys prior to submitting the offer to purchase. The SPIS along with the Rileys' observations should have resulted in further steps being taken. Yet no due diligence was undertaken by the Rileys or their realtor. The Rileys knew it was their obligation to follow up on the SPIS disclosure and that they had the right of further inspection.

[120] As previously mentioned, it is clear that water has been present in the basement but the evidence does not establish such was as extensive in the past. If there was a defect, I am satisfied it was patent. It was observable. I do not accept the suggestion of concealment as advanced on behalf of the plaintiffs. The sump pump and trench in the shop may not have been seen, hardly unexpected on such a brief viewing. With minimal effort, such would have been observed.

[122] The evidence tendered falls well short of establishing either fraudulent or negligent misrepresentation. The absence of evidence compounds the situation and prevents the evidentiary findings required by the plaintiffs. In the totality of the evidence, therefore, caveat emptor applies. The plaintiffs cannot recover damages with respect to the basement."

(sections omitted)

The trial Judge specifically reviewed the involvement of the realtors in this case, and I set out his comments verbatim:

"[131] I pause at this point to consider the involvement of the two real estate representatives in this transaction. They are not defendants and, hence, no evidence was tendered as to the standard of care they were required to perform.

[132] The realtors are said to be professional. They received a commission in some unknown amount on closing of the transaction. There can be no doubt they owed a duty of care. Mr. Korchensky and Mr. Rhodes made reference to the importance of checking for water problems, particularly in older homes. Nevertheless, on the evidence presented it appears neither realtor conducted any due diligence inquiry.

[133] Mr. Rhodes said he conducted a "cursory inspection" of the property when preparing the listing agreement. He met with the Langfields to complete the SPIS. Despite the stated disclosure in this document, Mr. Rhodes made no further inquiry.

[134] Mr. Korchensky saw the water or moisture disclosure in the SPIS. Despite his stated concern with this reference, he was content to rely on Mr. Langfield's limited comments. Mr. Korchensky, it appears, did not recommend a second viewing nor did he suggest a professional home inspection.

[135] Realtors are expected to provide advice and direction to their clients. They are paid to act as professionals. They are not simply tour guides walking through a residence. The cavalier attitude of both realtors with respect to the SPIS is troubling. The purpose of the SPIS is not to protect realtors from liability. They have a due diligence obligation."

The case was allowed in part with respect to some minor matters which required attention and for which a specific warranty had been included in the agreement, however, by and large the trial Judge dismissed the purchasers' case.

COMMENT:

In this case, the execution of the SPIS was to the substantial advantage of the vendors. It proved that there was disclosure. It shifted the onus to the purchasers. The purchasers could have made arrangements to protect themselves by:

1) making further inquiries,

2) inspecting the premises,

3) securing certain warranties from the vendors.

The problem here is that the purchasers took no such steps when all the warning signs were there. The Judge looked at the SPIS document in the context of the other statements and comments that had been made by the vendor, and although the vendor had in error described the basement as being "dry as a bone", this was simply a misstatement. It was a comment made by mistake, when the SPIS disclosure was considered.

The trial Judge was rather critical of the real estate agents and the lawyers in the presentation of the case. There was simply insufficient evidence called by counsel to prove fraud or negligence. The trial Judge speculated about the notes made by the purchasers' agent at the time of the inspection. He thought that they might have been produced in evidence.

However, I suspect that there weren't any. And, the warning to real estate agents in such circumstances: there should be notes. This is just as important as a police officer investigating an accident. Make notes! Make careful notes! And, make them as soon as possible after the inspection. Obviously, a camera or video-recording would be an excellent way to assist the Court in understanding what took place.

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: No Warranty for Water Damage

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Thu, 05 Nov 2009 09:46:02 -0600

False Disclosure: No Warranty for Water Damage

By Brian Madigan LL.B.

This case of Morrill and Bourgeois came on for trial in Superior Court of Justice at Thunder Bay in 2007.

Matthew Morrill purchased a property in Thunder Bay from Mr. and Mrs. Bourgeois. They acquired the residence in 2004 from Mrs. Bourgeois' grandmother who bought it in 1957.

The residence was relatively small consisting of about 680 to 700 square feet plus the basement.

The case is based on water damage and water leakage in the basement. The action is based on misrepresentations as the condition of the premises at the time of sale. It is alleged that the Seller Property Information Statement contained either fraudulent or negligent representations.

The Bourgeois decided to move to a larger home in September 2005. They listed their home for sale with two agents, being Mr. and Mrs. Ferris. At the time of the listing a Seller Property Information Statement (SPIS) was completed and it disclosed the following under the heading "Improvements and Structural":

· that they had not made any renovations, additions or improvements to the property;

· that they were not aware of any moisture and/or water problems;

· that they were not aware of any damage due to wind, fire, water, insects, termites, rodents, pets or wood rot;

· that they were not aware of any problems with the plumbing system.

Mr. Morrill viewed the property in early October and submitted an Offer on 22 October 2005. Prior to submitting the Offer he saw and reviewed the SPIS document. He again viewed the premises on 2 November 2005 with a home inspector, and closed the deal on 5 December 2005.

As you might imagine shortly after he obtained possession he discovered water problems in the basement. He smelled "mildew" and upon investigation found mould behind the panelling in the basement. He found cracks in the concrete blocks. In fact, some blocks could be removed by hand.

Mr. Morrill obtained estimates for the repair which exceeded $30,000.

Analysis by the Court:

· "Mr. Bourgeois testified that while he and his family resided in the home, he was in the basement daily. He said that he never noticed any mildew, odours or water problems. He stated that he knew a purchaser would read the Seller Property Information Statement before buying the home. He agreed that a portion of the Seller Property Information Statement, which indicated that the vendors had not made any renovations, additions or improvements to the property, was not accurate. He agreed that the master bedroom, and a deck that he had constructed at the rear of the home, were improvements. He explained that he and his wife had not acknowledged these improvements because the wording of the question indicated to him that it was in reference to those improvements for which a building permit had been obtained. He stated that he and Mrs. Bourgeois had not got building permits for the master bedroom or the deck.

· I am satisfied that there are serious water problems with the basement, including leaking, moisture and mildew. It is clear that the south wall has buckled and that a number of the concrete blocks are loose.

· The Seller Property Information Statement is not a warranty. To succeed in his action, Mr. Morrill must therefore prove misrepresentation.

· Weighing the evidence as a whole, with the proof commensurate with the gravity of the allegations, I am not satisfied that Mr. Morrill has proved on the balance of probability that Mr. and Mrs. Bourgeois, or either of them, were guilty of fraudulent misrepresentation concerning the problems with the basement.

· I accept that the basement walls had been a problem long before Mr. Morrill purchased the home.

· There was no evidence of any act of concealment (in fact, the vendors occupied part as the master bedroom and stored both their food and clothing in the basement).

· I do have some concerns about the fact that the Seller Property Information Statement was not accurate with respect to improvements. The explanation given by the Defendants was somewhat unclear. However, Mrs. Bourgeois did testify that the realtor was fully aware that the master bedroom was new to the home. In any event, it is difficult to see any perceived advantage to the Defendants in denying that they had made improvements to the home. I therefore do not place a lot of weight on this inaccuracy.

· The two real estate agents and the home inspector failed to detect the presence of a mildew smell or moisture."

The trial Judge concluded:

"While I have sympathy for Mr. Morrill, who has purchased a home with problems that will be very expensive to remedy, there is not sufficient evidence before me, commensurate with the gravity of the allegations, to conclude on the balance of probabilities that Mr. and Mrs. Bourgeois, or either of them, fraudulently, or negligently, misrepresented the condition of the basement."

COMMENT:

It would certainly seem that in this particular case that the vendors were quite fortunate. They were able to escape liability in part because they must have lived with he mildew smell and the moisture without notice. The fact the two realtors and the home inspector were similarly unaware, allowed the trial Judge to find in favour of the vendors. There was obviously "evidence", just not a sufficient amount of "evidence".

Although, they themselves had undertaken the finishing of the master bedroom in the basement, and their SPIS reference in that regard was inaccurate, it did not really relate to the specific matter in issue.

You will also note that there was no evidence of any egregious act on the part of the vendors like painting, hiding or concealing the problem in any way.

So, on the basis of contract, the SPIS did not amount to a warranty, and on the basis of tort there was no evidence of fraud or negligence.

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

Buyers Assessed Partial Responsibility for Seller's False Disclosure Statement

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Wed, 04 Nov 2009 14:27:08 -0600

Buyers Assessed Partial Responsibility for Sellers' False Disclosure Statement

By Brian Madigan LL.B.

The Karwandy and Sebastien case is another in the series of improperly completed Property Condition Statements.

This was an action heard in the Small Claims Court at Regina, Saskatchewan in 2002.

In the spring of 2001, Albert Sebastien, sold a quarter section of land with a dwelling on it to the plaintiffs. The purchasers claim that Albert and Lorraine Sebastien failed to disclose deficiencies in:

a) the electrical system in the dwelling, and
b) the existence of a garbage dump on the property.

The plaintiffs claim $5,000.00 as damages for correcting the deficiencies in the electrical system and cleaning up environmentally hazardous and other material in the garbage dump.

There were several conditions attached to the offer. These are set out in Schedule "A" of the Contract of Purchase and Sale. Three of the conditions are relevant to this claim.

Conditions 1 and 2 related to a Water Quantity and Quality Report and a Furnace and Chimney Inspection Report, respectively.

Condition 5 read as follows: "Buyers are aware and accept the condition of surrounding yard site".

On June 7, 2001, the plaintiffs signed a document entitled "Amendment to Contract of Purchase and Sale And/Or Notice To Remove Conditions" the effect of which was to remove all the conditions.

This amendment was signed by Albert and Lorraine Sebastien on June 8, 2001, and the sale was complete.

The plaintiffs received a Property Condition Disclosure Statement signed by the Sebastiens and dated May 25, 2001. The Disclosure Statement specifically provided that it did not form part of the Contract of Purchase and Sale.

The offer was subject to the buyers obtaining mortgage financing. As part of the application process, Farm Credit Corporation (the first mortgagee) required that the sellers or purchasers complete an Environmental Assessment. This form was signed by the Sebastiens on June 6, 2001 and the financing condition in the offer was removed on June 7, 2001, by the purchasers.

It should be noted that the purchasers' own real estate agent provided them with a document entitled "Ancillary Services In The Purchase Of A Home".

This document advised was of a general nature and advised purchasers of the "more common reports or inspections usually requested" by buyers of property.

The document listed 12 types of reports or inspections that the buyers should consider, including:

· a Property Condition Disclosure Statement

· a Water Quantity and Quality Inspection

· a Furnace and Chimney Inspection

· a Home Inspection, and

· an Electrical Inspection

Claim for electrical deficiencies

Here was the question in the PCS:

"Are you aware of any problems with the electrical system?" The answer provided was "No".

Obviously, there were some electrical problems.

The Court concluded:

"I find that the statement made by the Sebastiens in the Property Condition Disclosure Statement with respect to the electrical system was in fact misleading. As the Property Condition Disclosure Statement was not made part of the Contract of Purchase and Sale, the defendant is not liable on the basis of a breach of contract. However, I find that the defendant is liable for making a negligent misrepresentation as to the facts which was relied upon by the plaintiffs. It is part of our common law that an action for negligence based on negligent misrepresentation lies if damage results."

The Court went further to provide the following commentary:

· "While I find the defendant liable to the plaintiffs for the negligent misrepresentation, the plaintiffs must also take part of the responsibility for their loss.

· The SaskPower inspector testified that many of the electrical deficiencies were clearly visible.

· The 12 pages of photographs confirm that an inspection by the plaintiffs themselves would have revealed that there were problems with the electrical system.

· The plaintiff, Bernard Bedard, makes his living installing and repairing electronics. He did concede he saw some problems with the electrical system the one time he visited the yard but testified the deficiencies were much more extensive.

· The Property Condition Disclosure Statement advised buyers to make their "own inquires after receiving the disclosure statement".

· The Ancillary Services document, as noted in paragraph 4, suggested to the plaintiffs that they should consider obtaining an "Electrical Inspection".

· I find that a prudent and reasonable buyer, given the circumstances of this case, would have retained an expert to do an electrical inspection prior to purchasing the property.

· I find the plaintiffs were negligent in failing to do so. As a result, I find the plaintiffs are 30% at fault for their damages respecting repairs to the electrical system.

Claim for the presence of the garbage dump

Here was a question in the PCS:

"Are you aware of any additions or alterations made without a required permit?" Answer "No".

The Judge stated:

"Further, I find that the Sebastiens' answer to the question was not a negligent misrepresentation. The question is simply not specific enough as to the existence of the garbage dump to constitute a basis for the tort of negligent misrepresentation. As a result, the defendant is not liable in either contract or negligence with respect to this statement.

There was one other possible claim for the garbage dump.

The plaintiffs also rely on the Environmental Assessment form completed for the Farm Credit Corporation mortgage application by the sellers as a basis for the defendant's liability.

This form was actually filled out by Belinda Ferguson, the sellers' realtor, by asking questions of Mr. and Mrs. Sebastien. The purchasers rely on the "No" answers given to questions with respect to whether chemical waste, waste oil, pesticides, herbicides or fertilizers were ever used, dumped, stored or disposed of on the property.

Clearly, the answer to these questions would be yes in nearly every farm in Saskatchewan. Ms. Ferguson testified she found some of the questions on the form very confusing. It was the first time she had used the form.

The Court concluded as follows:

"Although the signatures of both Albert Sebastien and Lorraine Sebastien were on the FCC form, in the circumstances of the case, I find their answers to Ms. Ferguson's questions do not constitute a basis for the tort of negligent misrepresentation. It was the responsibility of the buyers to properly inspect the property before making an offer to purchase. The responsibility for cleaning up the garbage dump is that of the plaintiff buyers."

COMMENT:

This case ends up being split. The answers under the PCS relating the electrical system were clear and established liability. However, there was no liability in contract, the liability was in tort. And, that means that the trial Judge could assess contributory negligence as against the purchasers. This finding cannot be made unless it is set out in the pleadings. Obviously, it was, and the trial Judge found that the buyers were 30% responsible for their own loss.

However, when it came to the garbage dump claim, the PCS form was just not specific enough. It is interesting that there was a possibility that the mortgage application statements completed by the vendors could have given rise to liability.

Another point worth noting is the fact that the Ancillary Services Document provided to the purchasers even before they put in an Offer came back to haunt them. This was a document they received from their own real estate agent. It said get an inspection. They didn't and the trial Judge ended up dismissing this part ot their claim.

So, what should the purchasers' agent do? What should the vendor's agent do? Not supply this document? Would this not lower the level of service to their client? Fortunately, in this case, the agents were not sued.

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

Careless Completion of Disclosure Statement Sufficient to Find Liability

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Tue, 03 Nov 2009 11:49:12 -0600

Careless Completion of Disclosure Statement Sufficient to Find Liability

By Brian Madigan LL.B.

The Usenik and Sidorowicz lawsuit is another case in the line of improperly completed Seller Property Information Statements by vendors.

Briefly, the purchaser Rhonda Usenik wanted a good house that was in good condition and largely maintenance free. She saw the vendors' property and it seemed quite suitable. They made use of the basement but the purchaser intended to rent out the basement for additional income to help supplement the cost of the house.

The vendors were looking to downsize from their property which was located in Thunder Bay, Ontario.

The vendors completed a Seller Property Information Statemnent (SPIS) that included the following:

Environmental: item #3: "Is the property subject to flooding?" answer: "No"

Improvements And Structural: item # 7: "Are you aware of any moisture and/or water problems?" answer "No"

Prior to completion of the transaction, the purchaser inspected the property on a number of occasions, personally, with a friend, with her real estate agent and with her home inspector. There was no evidence of moisture.

The vendors met with their real estate agent and completed the Seller Property Information Statement with him. They say that they advised him that a number of years previously there had been some trouble with water in the basement but that they had fixed the problem and had not experienced any difficulty since that time. They say that the agent advised them that since the problem had been fixed there was no need to mention it.

The purchaser's offer was conditional pending the home inspection report. This report noted a general disclaimer about the presence of moisture and offered some comments with respect to preventive measures. It did not note the presence of moisture.

The Offer was firmed up, the deal closed, the purchaser fixed up the basement and rented it out to tenants. And, as you probably suspected, the basement leaked. The vendors had to admit that there had been a water problem some 9 years earlier in 1995, but they thought that the problem had been fixed. Apparently, not!

Analysis by the Court

The matter was heard in the trial division of the Superior Court of Justice of Ontario over a six day period. The Judge commented:

Are the vendors liable in damages for misrepresentation?

There are three kinds of misrepresentations or erroneous statements:

· Fraudulent statements,

· Negligent statements,

· Inadvertent or innocent statements.

Only the first two types of statements attract liability.

Neither torts nor contract provide a cause of action for damages for innocent misrepresentations.

A fraudulent statement is a statement of fact which is false, made by a person knowing it to be false or made so recklessly that the person does not care whether he is speaking the truth or not.

Were the Statements False?

Yes, one or more of the statements was false.

The questions asked caused the vendors some uncertainty. They consulted with their real estate agent. The questions were phrased in the present tense: "Is the property subject to flooding?" They interpreted this to mean "Is the property NOW subject to flooding?" But the truth of the matter was that while it may not now be flooding it was subject to flooding, ie. it was "liable or exposed or prone to."

Were the false statements made fraudulently, that is with an intent to deceive, knowing they were false or recklessly, not caring whether they were false or not?

"No, they were not.

However, I cannot say that even on the civil standard, the purchaser has established that the vendors had that degree of a "wicked mind" envisaged by out definition of civil fraud."

Were the false statements made negligently?

"Yes, the false statements were made negligently. In the words of the General Confession of the Book of Common Prayer they did "that which they ought not to have done and failed to do that which they ought to have done. . . ." Having embarked upon answering the questions asked the vendors should have followed their instincts and disclosed the previous problems, explained the solution to the problem and explained what would happen if the downspouts were not handled properly. Their failure to elaborate in this matter has brought them to grief."

Did the plaintiff rely upon the defendants' misrepresentation?

"I am satisfied that the purchaser relied upon the vendor's misrepresentation. It is argued that she actually acted upon the report of her building inspector. She did indeed rely upon it as well. But these statements by the vendors were important to her and, in the absence of any contrary evidence, she acted upon them."

Was the false statement a material cause of the act of the plaintiff, ie., has it been shown on a balance of probabilities that the plaintiff would not have acted to her detriment had it not been for the false statement made by the defendant?

"Can it be said that even if the vendors had not made the statements they did the purchaser would have bought the property and found herself in the same predicament? Again, this is a question to be determined on a balance of probabilities. The purchaser was a discriminating purchaser who had inspected many homes. "Hassle-free" living was her objective. I am satisfied that but for the misrepresentations the purchaser would not have bought this house."

Decision of the Court

After making a finding of negligence and concluding that the plaintiff relied upon the vendors' statement to her detriment, the Court then proceeded to assess the damages in this case. Damages in tort were awarded rather than damages in contract.

Compensation is to be assessed to redress damages suffered and not to restore the fabric of the house to the condition the purchaser anticipated it to be in.

COMMENT:

This is another interesting SPIS case. You will note that purchasers have more success in the higher Courts. In Small Claims Courts, the cases are handled quickly and there is often insufficient evidence to prove negligence. The cases are frequently resolved on contract principles and often dismissed. This was a six day trial in Superior Court. Costs frequently run in the vicinity of about $20,000 /day for such a trial.

You might wonder about the real estate agent. Well, the vendors took third party proceedings against him for negligence in the provision of his advice not to mention the moisture. It was repaired and it was in the past. That case was settled on the eve of the six day trial. So, from the perspective of the real estate agent, while he did not get off the hook, he was not liable for the costs of a six day trial. All in all, that was a smart move.

And, don't forget about the home inspector. He was sued too, but the Court dismissed any liability as against him. He made a smart move too. He represented himself in Court, so he had no heavy daily counsel fees, however, he did lose six days of pay.

Bob Aaron, a noted Toronto real estate lawyer makes the following comment about this particular case in one of his articles: "For home sellers, the prime lesson to be learned from the case is never - ever - sign an SPIS form. The problem is that the form currently in use in Ontario is far too complex and misleading for lay people - and many real estate agents - to understand and complete properly."

I have to agree with Bob, this is a complex and difficult form to fill out. Real estate agents really have limited knowledge when it comes to tort law, negligent statements, liability arising from such statements and so on. It's not in their course curriculum, so it would be difficult for the average real estate agent to know. This type of information is available within the industry at the continuing education level. Let's hope that most agents take such a program before they offer the advice on their first SPIS form.

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

Clever Avoidance of Disclosure Creates Liability

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Mon, 02 Nov 2009 18:06:42 -0600

Clever Avoidance of Disclosure Creates Liability

By Brian Madigan LL.B.

The Kaufmann and Gibson case involves the improper completion of the Seller Property Information Statement by the vendors.

The Kaufmanns resided in London, Ontario and acquired their residence in 1981. The original house had been constructed in the 1950's. They are sophisticated vendors, and although they were now in their ‘80's, both had practised medicine.

They experienced a problem with "ice-damming" on their roof. They arranged for repairs which were completed in 2004 at a cost of about $12,600.00.

The purchaser became aware of substantial repairs that had been undertaken and decided to withdraw from the purchase. The vendors eventually sold their residence and instituted an action for the deficiency. Gibson, the purchaser counterclaimed for recission.

The matter came on for trial in the Superior Court of Justice in Ontario before Mr. Justice Killeen.

Essentially, the merits of this case revolved around the interpretation of the proper completion of the Seller Property Information Statement by the vendor. It was customary to complete such a document in London, Ontario in accordance with the practice of the London Real Estate Board, although they are not mandatory.

The Kaufmanns met with Ms. Siskind , their agent and signed the SPIS. Mr. Kaufmann recalled that he prepared some handwritten notes for this meeting with Ms. Siskind. These notes include background data, such as repairs and renovations through the years, and a reference to the water damage in February 2004.

The SPIS - questions 7 to 9 - which addressed, directly or indirectly, the issue of water problems or damage read this way:

7. Are you aware of any moisture and/or water problems?

8. Are you aware of any damage due to wind, fire, water, insects,
termites, rodents, pets or wood rot?

9. Are you aware of any roof leakage or unrepaired damage?
Age of roof covering, if known?

Each of these questions required yes or no answers in appropriate boxes, and Mr. Kaufmann ultimately checked each of them off with a "No". He candidly admitted in direct examination that, on reading these questions, he thought he should include information about the water damage sustained in February. However, he said that Ms. Siskind dissuaded him from this disclosure by making two points: first, the language of the questions was in the "present tense" and second, there was no water problem at the time of the signing of the statement. The result was that, following her advice, he answered the questions in the negative.

The Kaufmanns authorized the contractor to release its repair documents to Mr. Gibson, who was "flabbergasted" by the scope or extent of the repairs mentioned by the 11-page set of documents he received. There were extensive repairs done, but he had no real assurance on the cause or causes of the water damage. The contractor told him there could be no guarantee that the water penetration would not re-occur.

Conclusions by the Court

I have decided to include verbatim the reasons for the decision. Here are the conclusions of the Court:

"[93] In my view, this case must be resolved within the specific context of the SPIS form and its impact on the agreement of purchase and sale.

[94] There is no dispute about the fact that Mr. and Mrs. Kaufmann agreed to sign the SPIS at the time they met with their agent...

[95] ..... Mr. Kaufmann was obviously conscious of what had happened in February at his home. In his notes for the meeting......he took the trouble to record the following: "Ice build up winter 2003-4 with complete restoration by Hickman-Mount."

[96] At several points in his evidence he took pains to acknowledge he thought he should have mentioned the ice damming incident and repairs in the SPIS but ended up not doing so as a result of Ms. Siskind's view that questions 7 to 9 spoke in the present tense and only required disclosure of water and related problems he was actually having on July 8.

[97] The matter continued to trouble him because he admitted he met Mr. Gibson at a garage sale and did not mention the 1997 and 2004 incidents because they might have thrown "cold water" on the sale. Also, at another point, in cross-examination, he candidly admitted that he wished he had added the language of the amended SPIS to the original one, adding "It was incomplete disclosure before."

[98] ..... I cannot see how a rational argument can be made for a "present-tense" or "current" interpretation of questions 7 to 9 in the SPIS.

[99] The spirit and general purpose of the SPIS form is well stated in two introductory paragraphs of the form reading as follows:

ANSWERS MUST BE COMPLETE AND ACCURATE.
This statement is designed in part to protect sellers by establishing that correct information concerning the property is being provided to Buyers. All of the information contained herein is provided by the Seller to the Broker/Sales representative. Any person who is in receipt of and utilizes this Statement acknowledges and agrees that the information is being provided for information purposes only and is not a warranty as to the matters recited hereinafter even if attached to an Agreement of Purchase and Sale. The Broker/ Sales Representative shall not be held responsible for the accuracy of any information contained herein.

BUYERS MUST STILL MAKE THEIR OWN ENQUIRIES.

Buyers must still make their own enquiries notwithstanding the information contained on this statement. Each question and answer must be considered and where necessary, keeping in mind that the Seller's knowledge of the property may be incomplete, additional information can be requested from the Sellers or from an independent source such as the Municipality. Buyers can hire an independent inspector to examine the property to determine whether defects exist and to provide an estimate of the cost of repairing problems that have been identified.

This statement does not provide information on psychological stigmas that may be associated with a property. For the purpose of this Seller Property Information Statement, a "Seller" includes a landlord and a "buyer" includes a tenant, or a prospective tenant.

[100] As can be seen in the opening words of paragraph 1, "ANSWERS MUST BE COMPLETE AND ACCURATE". While this paragraph goes on to say that the answers do not constitute warranties, there cannot be any doubt that they can have legal consequences as representations, especially if they were read by the purchasers before submitting their offer, as here, and were then incorporated into the terms and conditions of the agreement.

One finds the following clause in Schedule A to the agreement confirming incorporation:

The Buyer acknowledges that the Buyer has received a completed Seller Property Information Statement from the Seller, attached hereto as Schedule B and forming part of this Agreement of Purchase and Sale and has had an opportunity to read the information provided by the Seller on the Seller Property Information Statement prior to submitting this offer.

[101] There is nothing within the preliminary two paragraphs of the SPIS suggesting that the various questions should be given any special or narrow reading and since paragraph 1 leads off with an admonition to vendors that their answers should be "complete and accurate" it is not unreasonable to infer that the questions should be given a plain, common-sense reading rather than a narrow or tortured one.

[102] The 16 questions in the key "Structural" section of the form are all open and plain questions which, as it seems to me, call for open and plain answers.

[103] Many of the questions start with the broad phrase "are you aware of" and then go on to mention "problems" of a variety of kinds.

[104] For example, question 1 asks "Are you aware of any structural problems?" This is broad language and cannot be realistically limited to structural problems on the day the form was signed.

[105] The three questions in issue - questions 7 to 9 -- are similarly framed and cannot, in their plain terms, be said to only call for answers on a current or so-called present-tense basis.

[106] Question 7 asks about awareness of moisture or water problems; question 8 about damage due to water or other things; question 9 about roof leakage or unrepaired damage.

In other words, there are no suggestions in any of these questions about exact current conditions alone and they all speak of concerns about water problems in one way or another.

[107] To me it is patently impossible to give the narrow reading to these questions which the plaintiffs' argument presents.

[108] What if the plaintiffs had had a flood in their basement through a cracked basement wall one month before July 8 and had had the entire basement repaired and cleaned up so that the damage problem was corrected? On the plaintiffs' approach, disclosure would not be needed. The mere asking of such a question, or a similar one, shows how wrong-headed the interpretive approach of the plaintiffs is.

[109] It seems that, in the past 10 years or so, similar voluntary disclosure statements to the one employed here have been adopted by real estate boards across Canada. Almost inevitably, they have given rise to litigation over their meaning and reach.

[110] One of the leading cases is Alevizos v. Nirula, 2003 MBCA 148 (CanLII), [2003] M.J. No. 433, 2003 MBCA 148 (Man. C.A.), a decision of the Manitoba Court of Appeal written by Chief Justice Scott. (This case was quoted with approval)

(Sections omitted)

[115] It is important to emphasize that, unlike the situation in Alevizos case, the defendant purchasers in this case took the trouble to incorporate the SPIS document directly into the terms and conditions of the agreement.

[116] In my view, this greatly strengthens the position of the defendants because they were relying on the SPIS, not as an outside document containing representations, but, rather, as a specific contractual commitment within the four corners of the agreement itself.

[117] I find as a fact that the SPIS answers in this case were clearly untrue on Mr. Kaufmann's part and he knew them to be untrue when he answered "No" to all three questions and declined even to add some comments in the "Additional Comments" lines below the questions.

[118] With respect, Mr. Kaufmann cannot hide behind the back of his agent, Ms. Siskind, and evade legal responsibility by saying that he answered the questions as he did because of her advice. He must be answerable, in short, for his calculated non-answers.

[119] I agree.... that, once a vendor "breaks his silence" by signing the SPIS, the doctrine of caveat emptor falls away as a defence mechanism and the vendor must speak truthfully and completely about the matters raised in the unambiguous questions at issue here. In this case, the called-for truthful answers were an integral part of the contractual terms and the failure to provide truthful answers fully justified the defendants in refusing to close and asking for rescission of the agreement.

[120] The plaintiffs in argument, raised two points about the defendants' conduct after the agreement had been signed which he said prevented their counterclaim from succeeding.

[121] First, it was argued that the waiver of the home inspection condition prevented rescission from being available to the defendants.

[122] The home inspection was, of course, conducted by Mr. Hiemstra on July 22 and Mr. Gibson was present with him as he examined the home. His inspection report disclosed nothing of consequence with the result that the purchasers signed a waiver of the condition two days later on July 24.

[123] I cannot accept (the plaintiffs' counsel's) submission that this waiver of the home inspection condition somehow means, at the same time, that the purchasers waived their right to rely on the untrue answers in the SPIS form, as incorporated in the agreement.

[124] It is a matter of obvious fact that home inspections may not discover things that are not visible to the naked eye and, in this home, the home inspection could not realistically discover what had happened in February and the repairs which had been done then. In fact, the Hickman Mount repair work had covered up what had happened.

[125] In short, there is simply no support for an argument that the limited waiver as to the home inspection should embrace the SPIS misrepresentations and eviscerate them.

(Sections omitted, not relevant to SPIS discussion)

[131] In sum, I conclude that the plaintiffs deliberately withheld information from the purchasers in the answers to questions 7 to 9 of the SPIS, information that was strongly relevant to the purchasers in deciding whether to sign the agreement. Since the SPIS form was incorporated in the agreement, the non-disclosure was tantamount to false representations as to the condition of the home and justifies rescission.

[132] An order will go dismissing the plaintiffs action, and an order will issue under the counterclaim declaring that the agreement is rescinded."

COMMENT:

This case is particularly important because it deals with the SPIS document and basically outlines instructions on how to complete it safely. The document is to be broadly interpreted. Do not use a narrow focus. It is to be viewed from the perspective of what a purchaser would reasonably want to know. Forget about a narrow, technical meaning. That can only get a vendor and the vendor's agent in trouble.

The document deals with issues and the past is quite relevant. It is certainly not to be forgotten. Do not impose a narrow, "today only", "present tense" meaning on the case. That will expose the vendor to risk. Better to decline to complete the document at all, than to offer part answers or half-truths! Deception, no matter how clever won't work.

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

Seller Cover-Up Not Enough to Avoid Liability

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Mon, 02 Nov 2009 17:53:09 -0600

Seller Cover-Up Not Enough to Avoid Liability

By Brian Madigan LL.B.

The Cole and Vankoughnett case involves representations and remedies available for improper completion of the Seller Property Information Statement (SPIS).

The purchasers brought an action in Small Claims Court for misrepresentation, and non-disclosure of patent defects and latent defects in respect to a semi-detached residence sold by the vendors in 2003. The specific items of concern were the sewer system, the roofs, and water penetration into the basement.

The plaintiffs are a young couple purchasing their first home and the defendant is an elderly widow. The parties entered into an agreement of purchase and sale in August 2003 and the transaction closed September 3, 2003.

The vendor had at one time owned both sides of the semi-detached residence and throughout her ownership of the property there were several issues concerning the sewer system and the underground drainage.

The court found a municipal system with a very low capacity constitutes a defect.

The severe rationing of use as described by the plaintiffs (restricted showers and restricted laundry) amounts to a serious adverse effect on the habitability of the residence.

The court also found the defendant was aware of the defect or would have been aware if she had confronted the question in the context of normal demand by a busy family of 3 rather than a very low demand by two elderly women sharing a joint line for many years. The plaintiffs were entitled to compensation for the amount which will be required to correct the defect.

In early 2003, a leak occurred in the roof above the kitchen. The vendor made arrangements to have it repaired. It did not leak again until the Spring of 2004, at which time it required far more extensive repairs. The Court dismissed this part of the purchasers' claim.

There was also a claim for water damage in the basement. When the defendant listed the house early in 2003 she completed for the benefit of prospective purchasers a Seller Property Information Statement . In answer to the question "Are you aware of any moisture and/or water problems in the basement or crawl space?" she answered in the affirmative and commented "In spring."

The court made the following findings of fact:

· the understatement on the SPIS was a description of the traditional water problem water problem which had existed until 2002.

· About the time the defendant was completing the SPIS in February of 2003 she was beginning to experience an accumulation of water for the first time.

· The SPIS was not amended to show the new reality.

· By May of 2003 the basement floor was looking "crummy" according to the defendant.

· It is probable it was by then stained by the water which accumulated rather than was being carried away.

· About May of 2003 and approximately 3 months after the property was listed the defendant's son painted the basement floor because it now looked "crummy."

· Ankle deep water in a basement is a defect.

· Painting that floor was in this case a concealment of that defect.

· It adversely affects the habitability of the residence and in particular the basement.

· The defendant had recently become aware of the newly acquired defect and had a duty to disclose it, but did not.

The purchasers were awarded a judgment for damages reflecting the cost of replacement of the sewer drain system and the cost of repairing the leak in the basement.

COMMENT:

The reasons for Judgment do not specify whether the SPIS document had been made part of the agreement, or whether it was merely a representation that accompanied the listing.

However, when answering the questions, the vendor has to consider normal usage of the building. The answers have to be reasonably objective and be considered in light of the normal usage of the premises by a reasonable purchaser. The drainage system needs to be sufficient to draw waste water away every day of the week, not just on some days and at intervals. This was in fact a system that was connected to the municipal system.

The original SPIS was completed when the property was listed for sale, however, things changed. Water leaked into the basement and the SPIS needed to be updated. It was not, and therefore this constituted a misrepresentation.

Painting the basement floor just aggravated the circumstances and amounted to concealment.

In this case, just being "elderly" was not a good enough excuse!

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

Sellers' Careless Disclosure Leads to Liability

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sun, 01 Nov 2009 13:24:57 -0600

Sellers' Careless Disclosure Leads to Liability

By Brian Madigan LL.B.

This is another case involving the improper completion of a Property Condition Disclosure Statement and the remedies that are available afterwards.

This case was determined in the Small Claims Court of Nova Scotia in February 2007.

The Boychuks entered into an agreement of purchase and sale to acquire a residence owned and occupied by the Butlers in Dartmouth. It should be noted that Mrs. Butler was a licensed real estate agent and acted for herself and her husband in connection with the sale.

The agreement contained the following provision:

"3(b) This agreement is subject to the Seller providing to the Buyer within 24 hours of the acceptance of this offer, a current Property Condition Disclosure Statement, and that statement meeting with the Buyer's satisfaction. The Buyer shall be deemed to be satisfied with the statement unless the Seller or the Seller's agent is notified to the contrary, in writing, on or before (date) Jan 30/06. The Seller warrants it to be complete and current, to the best of their knowledge, as of the date of acceptance of this agreement, and further agrees to advise the Buyer of any changes that occur in the condition of the property prior to the closing date. If notice to the contrary is received, then either party shall be at liberty to terminate this contract. Once received and accepted, the Property Condition Disclosure statement shall form part of this Agreement of Purchase and Sale."

A Property Condition Disclosure Statement dated January 8, 2006, was completed by the Sellers and was provided to the Buyers as required under the terms of the agreement.

The home had been purchased by the Sellers in July 2002. In 2003, they experienced dampness in their yard. They contacted Ralph Crowell, who is a local installer of septic fields and septic tanks. Subsequently, they contacted two other contractors. Remedial work to the septic system was undertaken in both 2003 and 2005.

The agreement and closing took place during the winter conditions of 2006 (the 30th of March), so the septic system could not be properly inspected at that time. By the summer of 2006, a contractor reported that there was a complete system failure and the septic system required replacement.

The Court looked at the issue of negligent misrepresentation. There is a five part test before a claimant will be successful:

(1) there must be a duty of care based on a "special relationship"
between the representor and the representee;

(2) the representation in question must be untrue, inaccurate, or misleading;

(3) the representor must have acted negligently in making said misrepresentations;

(4) the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and

(5) the reliance must have been detrimental to the representee in the sense that damages resulted.

There is a review and analysis of the facts and the law in the Judgment:

"(76) According to paragraph 3(b) of the Agreement in this case, the Property Condition Disclosure Statement forms part of same once received and accepted.

(77) Applying the five part test .... I find firstly that there is a duty of care based upon the relationship between the parties.

(78) The next issue is whether the Sellers made to the Buyers a representation that is untrue, inaccurate or misleading.

(79) The Sellers rely upon the fact that the Property Disclosure Statement contains additional comments at paragraph 11 as previously noted. In fact paragraph 11 does contain a statement that french drains had been installed around the rear of the property in the Summer of 2004 and Spring of 2005.

(80) From their perspective, however, the Buyers submit that the provisions of the Property Condition Disclosure Statement relating to the septic disposal system note no previous problems with the existing system or upgrades having been carried out to the system in the last five years. In addition, paragraph 5 of Addendum Form 101, Schedule 4, contains a specific statement that the Seller warrants "to the best of their knowledge" that the septic disposal system is in good working order and has not presented any problems during their ownership and this warranty explicitly is stated to survive the closing.

(81) On the whole, I find the statements in the Property Condition Disclosure Statement to be misleading to potential purchasers. Anne Butler is a licensed Real Estate Agent. Despite her lack of personal experience with septic waste disposal systems, she clearly was aware that the water and drainage problems they were having were related to the septic field.... The drainage repairs were undertaken by them as a means of attempting to fix the issues they were having with their septic system. No explanation was given concerning why the information about the french drains was noted under additional comments in the area of "Structural" in the Property Condition Disclosure Statement. Paragraph 6A. and B. specifically refer to structural problems, unrepaired damage or leakage in the foundation, roof or walls and make no reference to problems with the septic system.

(82) The third step of the test is to determine whether the representor acted negligently in making the representation. I do conclude that the Vendors were negligent in making such representations in the manner in which they were made. It would be expected of a Vendor in this case, and even more so where Ms. Butler is a licensed Real Estate Agent, to note the drainage repairs in the area in the Property Condition Disclosure Statement concerning "Sewage Disposal" which would alert potential purchasers to possible problems with the system, such that they would inquire further. To include this information in the area of "Structural" would imply to a potential purchaser that the repairs were undertaken to deal with a problem of leakage in the foundation, roof or walls of the house. They would not be alerted to the possible problems with the septic system which the Sellers in this case were fully aware of.

(83) I find in this case that the Sellers were at the very least careless when preparing the Property Condition Disclosure Statement by failing to connect the drainage repairs to possible problems with the septic system.

(84) ....... to place this information under the "Structural" section of the Property Condition Disclosure Statement could easily mislead a potential purchaser into believing that the aforesaid repairs concerned structural issues with the foundation, roof or walls. This was particularly important in this case as the Sellers had in fact undertaken major structural repairs, including replacement of leaking windows before listing the property for sale.

(85) In reaching my conclusions on this point, I have also taken into consideration that a failure to provide information may constitute a misrepresentation as much as a positive misstatement.

(86) The fourth step of the test is whether the Buyers in this case relied in a reasonable manner upon the negligent misrepresentation. Once again, I have no hesitation in finding that this is the case. A buyer would reasonably conclude from the way that the Property Condition Disclosure Statement was prepared that the installation of the french drains was to deal with structural issues not possible problems with the sewage disposal or septic system.

(87) Step five of the test is clearly proven as the Buyers discovered that the system had failed entirely shortly after the snow melted from the ground."

The trial Judge allowed the purchasers' claim for the cost of the replacement of the septic system, but reduced the amount of the damages by 50% by reason of betterment.

COMMENT:

This case again points out the difficulties with the completion of the form. Here, one of the vendors was a real estate agent and was therefore held to a higher standard than might otherwise have been the case. While there was no apparent attempt to deceive, the document was filled out carelessly.

It should be observed that in this particular case the Property Condition Disclosure Statement (PCDS) was elevated to form part of the contractual terms of the agreement itself.

The test of correctness of the answers was measured from the purchasers' perspective. What would a normal purchaser think, given the responses? The Court did not consider whether the answers might be good responses from a technical point of view on the part of the vendors.

In this case, there were questions related to the septic system, and nothing was noted. Yet, the mere fact that disclosure was provided in another part of the document was not sufficient. It is risky and foolhardy to be vague. It is also risky and foolhardy to place the correct information in the wrong location in the document. That's not disclosure. In fact, it might be considered to be concealment.

In this case, the Court correctly imposed liability upon the sellers because the Property Condition Disclosure Statement as a whole was misleading.

It is noteworthy that the Court did not have to go as far as to conclude that the sellers were "deceitful", the Court simply based liability on the basis of "carelessness".

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

Should You Be a Broker/ (Part 2)

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sun, 01 Nov 2009 12:11:11 -0600

Should You Be a Broker? (Part 2)

By Brian Madigan LL.B.

Since I recently published Part 1, (which wasn't Part 1 at the time) I have to publish an Update.

The Real Estate Council of Ontario (RECO) has just announced that it is changing the continuing education policy rules:

"Furthermore, any courses completed to fulfill the educational requirement for registration do not qualify for CE credits or for carry-forward credits. These include the three education courses taken in the initial two-year registration cycle (Real Property Law, the Course 3 Advanced course not completed during pre-registration, and one elective) as well as the Broker Course and additional elective required to qualify for broker registration.

This change to the policy makes the application of the CE Policy consistent across all registration levels.

To facilitate the transition process of this new policy, a two-month grace period (until December 31, 2009) will be extended to registrants who are currently completing, or are registered for, the courses required for Broker registration and have intentions of using these credits towards their continuing education requirements. Any registrant who has completed the broker course or the additional pre-requisite articling course prior to January 1, 2010 will be able to apply these for a maximum of 18 carry-forward credits into their first CE cycle as a broker."

So, if you were thinking about being a broker, do it now. You have the November and December. After that, there is no 18 credit carry-forward.

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

Use of AR Blogs To Promote Business and Develop Relationships

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sat, 31 Oct 2009 21:46:32 -0500

By Brian Madigan LL.B.

There are several important aspects of the blog post. First, of course, is the challenge to write the post in the first place.

I have a variety of topics and generally stick to markets, finance, economics and law related to real estate.

I receive at least 25 questions weekly from new people who have found a blog post on the internet. So, I never really run out of new topics. I try to post somewhere between 10 and 15 per week. I find that if I'm always writing during downtime (which is usually when I'm waiting for someone to return a phone call), I will have something to post when the time is ready.

Some of the posts are recurring, in the sense that I report frequently, but on a regular basis concerning performance statistics, other market indicators and I have developed my own Real Estate Index. That also means that I have developed a group of followers who look for this information. Oddly enough, because of the internet, I'm popular in Australia.

Law is however the main topic. Often it will focus on the role of the seller, buyer or real estate agent in a transaction.

At the point I have over 1,000 articles posted on these topics, so that generates some recurring inquiries.

The next step after writing and posting, is to move some of the posts to a "pdf" format. I then transfer them to my website where there is at least some topical order, something better than a chronological format.

The "pdf" allows me to send copies of the posts to individuals who have posed a question. Very often, a quick e-mail response with the "pdf" article is enough, or even a copy of the AR link.

For presentations, the "pdf" article is a must. These same blogs and posts are being recycled as handouts and they can look quite professional.

The next step is newsletter. Here I have to select about 8 articles for the four page newsletter.

Then comes another two or three articles for the monthly written magazine, the Business Exchange. The same thing goes for the Commercial Investor, a rival publication, but they take a maximum of two.

Then, I have the local newspaper which takes one per week, one for the Board of Trade, that's monthly, as is a Law Journal.

And, I'm making a speech at the Business and Franchise show this month. So, if I string four together, and "ad lib" a bit that will carry me through the one hour program.

Bob Hayward said write a series, so I did. I have 40 to 50 just on the law of disclosure, and the Real Estate Council has just approved me as an education provider and the course as a 3 hour continuing education credit course.

However, that's really not the end of it. Larry Easto wrote a blog to the effect that if you have 100 blogs then you have written a book. Actually, I now have over 1,000 articles, so that's 10 books. Obviously, since we are both in Toronto, I met with Larry to discuss this opportunity.

There are several groupings of blogs that will constitute the basis for other continuing education programs. At my last count, at least seven other programs.

And, now with so many postings I find that I'm on a radio talk show at least once per week, and quoted in one of the newspapers about every second week.

The best item that you can send along is a copy of a post. They probably found one, that's how they came to contact me in the first place, but, there are others, and that adds depth to the field.

All in all, that's the "life cycle" of my AR blog posts.

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 Escapes Liability for False and Misleading Disclosure Statement

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Fri, 30 Oct 2009 16:38:29 -0500

Seller Escapes Liability for False and Misleading Disclosure Statement

By Brian Madigan LL.B.

This was a case heard in the Supreme Court of British Columbia and it involved the Property Condition Disclosure Statement.

Briefly, the plaintiff as purchaser acquired a condominium unit for $133,000 but the unit leaks, as do others in the complex. Obviously, this problem has become well known in Vancouver. No one wants to buy, particularly with so many others available. The value has dropped to $22,000 and the purchaser, Sask faces a special assessment of $60,000 for her share of common ownership repairs.

In a nutshell, this is a mess!

Naturally, the condominium owners are suing the builder but that will take time. In this case, Sask claims that the vendors made false or negligent representations in the Property Condition Disclosure Statement (PCDS).

The trial Judge expressed the issues in the case as the following questions:

1. Did Michael Brooke and Ursula Wenzel misrepresent the condition of their condominium at the time of sale?

2. Was Shirley Sask induced to purchase the condominium by those misrepresentations?

3. What damages has Shirley Sask suffered?

The agreement of purchase and sale included several conditions including financing, perusal of the strata council minutes and the sellers' Property Condition Disclosure Statement.

In many cases, the PCDS is made to form part of the agreement by attaching it to the agreement as a Schedule or Addendum. Here, it was simply a condition.

The sellers answered "No" to the following questions:

H. Are you aware of any structural problems with the premises or other buildings on the property?

K. Are you aware of any damage due to wind, fire, water?

M. Are you aware of any roof leakage or unrepaired damage?

The preamble to the document is worth noting, according to the trial Judge:

"THE SELLERS ARE RESPONSIBLE FOR THE ACCURACY OF THE ANSWERS ON THIS DISCLOSURE STATEMENT AND WHERE UNCERTAIN SHOULD REPLY "DO NOT KNOW". THIS DISCLOSURE STATEMENT CONSTITUTES A REPRESENTATION UNDER ANY CONTRACT OF PURCHASE AND SALE IF SO AGREED IN WRITING BY THE SELLERS AND BUYERS."

In addition, there is a statement that appears in the document above the seller's signature:

"The sellers state that the above information is true, based on the sellers' current actual knowledge as of the above date. Any important changes to this information made known to the sellers will be disclosed by sellers to buyers prior to closing. The sellers acknowledge receipt of a copy of this disclosure statement and agree that a copy may be given to prospective buyers."

Further, just above the buyers' signature on the same document is the following disclaimer:

"The buyers acknowledge that they have received and read a signed copy of this disclosure statement from the sellers or the sellers' agent on the 24th day of February, 1997. The prudent buyers will use this disclosure statement as the starting point for their own inquiries. The buyers are urged to carefully inspect the property and, if desired, to have the property inspected by an inspection service of their choice."

The Judge in analysing this case said that "The more important questions concern the extent to which the sellers represented the condition of the property and the extent to which Shirley Sask relied upon their representations.

A copy of the disclosure statement, dated February 17, 1997, was given to Shirley Sask before she signed the contract of purchase and sale on February 24th, and the sale was subject to Sask "perusing & approving" the strata council's minutes, bylaws, and financial statements.

Sask has not proved reliance upon the disclosure statement in isolation from the strata council minutes which were provided to her at the time of sale. Sask has failed to prove that the sellers intended to mislead her in any way, particularly when the disclosure statement is read in conjunction with the strata council minutes.

It should be noted that the strata council minutes detailed the problems and expenditures of the condominium in respect to the premises.

The tort of negligent misrepresentation is now an established principle of Canadian law: Queen v. Cognos Inc. (1993), 99 D.L.R.(4th) 626 (S.C.C.). Five requirements must be met:

(1) there must be a duty of care based on a "special relationship" between the representor and the representee;

(2) the representation in question must be untrue, inaccurate, or misleading;

(3) the representor must have acted negligently in making said misrepresentation;

(4) the representee must have relied, in a reasonable manner, on the said negligent misrepresentation;

(5) the reliance must have been detrimental to the representee in the sense that damages resulted.

In this case, the first three requirements were met including negligence on the part of the sellers in making the statements.

The trial Judge stated:

"However, whether or not the sellers were negligent in purporting to confine their representations to the condition of their own unit is not, in my view, determinative of this claim. In light of their concurrent provision of minutes from strata council meetings where leakage problems were discussed, the sellers' disclosure obligations were fulfilled in a manner that should have alerted a prudent purchaser to the need to make further inquiries."

And further commented:

"In my view, the fourth requirement of the mentioned test in Queen v. Cognos Inc. has not been met, as I cannot conclude that Shirley Sask acted in a reasonable manner by relying upon the property condition disclosure statement without reference to the information provided in the strata council minutes. The sale was subject to a condition precedent that contemplated perusal and approval of the strata council's minutes, bylaws and financial statements, and in complying with that condition the sellers were effectively providing Shirley Sask with the history of water leakage problems in the complex. In light of her opportunity to review those documents, Ms. Sask had the right to refuse to close the transaction as a consequence of that information, but chose not to do so.

On the whole of the evidence, it has not been proven that the sellers misrepresented the condition of unit #206, and the claim is dismissed".

COMMENT:

So this is an interesting case. The sellers made a misrepresentation. That misrepresentation was made negligently, but the Judge concluded that all in all, the purchaser did not rely on that the document that contained the errors.

There was ample opportunity for the purchaser to find out the correct facts from the strata council minutes. As a result, there was no liability on the part of the vendors. However, rather than being saved by the signing of the Property Condition Disclosure Statement, they were in fact saved because there was a condition in the agreement permitting the purchaser to peruse the strata council minutes, and the correct information could be found there. The mere fact that the Purchaser failed to look, is her fault, and does not establish liability on the part of the vendors.

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

Use of Surveys for Subdivisions in Ontario

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Thu, 29 Oct 2009 19:59:13 -0500

The Use of Surveys for Subdivisions in Ontario

By Brian Madigan LL.B.

Ontario Land Surveyors are called upon to prepare three kinds of surveys for the division of property by subdivision:

1) M-Plan,

2) Registered Plan,

3) Condominium Plan

Upon registration in the Land Registry Office, these surveys divide property into lots or units and set out boundaries for the first
time, after appropriate approvals have been obtained.

Another type of survey, namely the Reference Plan or R-Plan is used to assist in the severance of property, but it is the registration of the transfer, deed or conveyance that actually results in the division of property, not the survey.

In the case of plans of subdivision (M-Plans and Registered Plans), and condominium plans, it is the registration of the plan that subdivides the parcel of property and creates the new lots or the new units.

In Ontario, there are two systems of land registration both in use concurrently throughout the Province, the Land Titles system and the Registry system. An M-Plan is a plan of subdivision in the Land Titles system and a Registered Plan is a plan of subdivision in the Registry system.

It is now a requirement that in most areas, a property must be transferred from the registry system to land titles before a plan of subdivision can be registered.

A condominium plan is composed of a Declaration and Description. The Declaration is the most important component of the Constitution of the Condominium which is the Declaration itself together with the By-Laws. The Description is essentially the plan of survey, together with some additional architectural drawings and structural plans.

Remember the example under discussion:

· A farm comprised of 100 acres

· a large 150 year old farmhouse and small barns and outbuildings

· next stage will be to carve up the property into two pieces

· one acre is to remain with the farmhouse and to continue as a residential property

· remaining 99 acres are to be developed

The surveyor then creates legal descriptions that could be used for future conveyances of the two parcels as follows:

1) Part 1, Reference Plan 241 (being one acre with a farmhouse),
2) Part 2, Reference Plan 241 (being ninety-nine acres).

When it comes to dividing up the 99 acres, a plan of subdivision or M-Plan will be used. It will be based upon Part 2, RP-241.

Let's assume that the 99 acres is to be divided into:

· Roads and streets

· Municipal property, for drainage and sewers

· School property

· Retail areas

· 200 lots for residential development

All of these items will be included in the new plan of subdivision, which would be registered as ie. M-796.

In fact, part of the 99 acres could be a condominium development. Perhaps some 5 acres might be sectioned off for such a development. Typically, such a parcel would be shown as Block "A". That designation is for property which is later to be the subject of development. Two apartment towers of 30 storeys each might contain 5 apartments per floor or 150 units in the building. These two towers might accommodate the same number of people as the remaining 200 lots for residential housing.

The condominium registration of the constitution and the survey divides the property into legal units. The condominium is usually described by the municipality and the registration number in series, ie. Peel Condominium Corporation No. 812. The legal description now that registration has taken place can be sufficiently located by reference to PCC 812. However, the former legal description used immediately prior to registration would have been Block "A", Plan M-796.

You will appreciate that the condominium cannot be registered until an Ontario Land Surveyor certifies that those two 30 storey towers are really there. There's no such thing as "real estate" in the air. The buildings must be present, and confirmed by an OLS before the registration and creation of the units.

These activities help to underscore the importance of the survey profession.

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

Business Partners ~ The Key to Success

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Wed, 28 Oct 2009 12:55:34 -0500

Business Partners ~ The Key to Success

By Brian Madigan LL.B.

Many entrepreneurs and small business owners frequently search for the key to success. The answer is often quite simple: get the right business partners.

There are two types of partners:

1) external, outside partners, and
2) internal, inside partners.

The first type is easy. Most people get this. These are arrangements with suppliers, creditors and customers. These are merchandising groups, franchisors, and even competitors. Here, the advantage is to structure a business alliance to your advantage.

The second type of partner is a true partner. This is someone on the inside who shares in the risks and rewards in the business with you. This is someone who is just as worried as you about "meeting payroll".

The advantage with a good partner is not only that you allocate the risks, you can strategically improve the business because each of you will have different skill sets. You will concentrate and specialize in some aspect of the business you enjoy. Similarly, the partner will have other and different interests.

The essential component is the ability to delegate and specialize that makes partnerships attractive. However, you can appreciate that the wrong partner could be a disaster. In the vast majority of cases, good partners will make a valuable and beneficial contribution to the business.

Actually, finding the right partners in any small business is the key to success, and allows a small business to grow into a medium sized business.

Most small businesses can divide their operations into three separate activities:

1) sales,
2) production, and
3) administration.

It's difficult to find someone who is equally good at all three. Typically, the salesman will be a disaster when it comes to administration. And, the person who loves accounting, human resources and dealing with government agencies will not likely be good at sales.

Production is exactly what your particular business is all about. So, whether you are a lawyer, accountant, doctor, hairdresser, baker, travel consultant, or manufacturer, something in your organization needs to be produced so that you can make money. It's not sales, and it's not administration, that is important here.

However, let's not underestimate the significant contribution of sales and administration to the overall success of the business. There are lawyers in law firms that do nothing more than bring in work. There are others that handle the files, and still others who oversee the entire law firm.

So, some advice for a small business that wants to grow: find some good partners, delegate, and specialize.

And, you will soon find that your small business has become a big business.

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

Steps in the Process of Preparing a Survey

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Tue, 27 Oct 2009 16:23:52 -0500

Steps in the Process of Preparing a Survey

By Brian Madigan LL.B.

When an Ontario Land Surveyor prepares a Surveyor's Real Property Report, there are certain basic steps that must be followed:

Research

· a search of title of the subject lands

· a search of title of the abutting properties

· a search of all pertinent encumbrances registered against the title of the subject property

· a search of all pertinent encumbrances registered against the title of the abutting properties

· a search of other surveyor's offices to obtain all plans relating to location of boundaries of the subject property

Field Inspection, Observation and Measurement

· a field survey to determine the actual dimensions of the property, the location of improvements and the setting of corner markers

Review of Research, Measurements and Analysis

· an analysis of research and field data

Graphical Presentation

· the preparation of the plan illustrating the results of the field survey and the title research

Written Opinion

· the preparation of a written report providing the surveyor's opinion about any contentious issues that may have been found during the survey

· execution of the document by signing the original and affixing the seal

Now, you have an original signed and sealed Surveyor's Real Property Report consisting of two pages, namely the graphical representation and the opinion.

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

October 2009 Mortgage Rates

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Tue, 27 Oct 2009 15:26:34 -0500

October 2009 Mortgage Rates

By Brian Madigan LL.B.

Interest rates are at an all time low. Have a look at the posted rates and the preferred rates. The Bank of Canada prime is 0.25%.

Now, might be the time to lock-in, or at the very least secure a pre-approved mortgage commitment.

TERM.....POSTED.....PREFERRED

6 Mos........ 4.60%..... 3.85%
1 YEAR....... 3.75%..... 2.55%
2 YEARS..... 4.05%..... 3.05%
3 YEARS..... 4.60%..... 3.59%
4 YEARS..... 5.29%..... 4.09%
5 YEARS..... 5.78%..... 4.19%
7 YEARS..... 6.60%..... 5.30%
10YEARS..... 6.70%..... 5.40%

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 Four Basic Types of Survey in Ontario

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Mon, 26 Oct 2009 20:23:49 -0500

The Four Basic Types of Surveys in Ontario

By Brian Madigan LL.B.

Ontario Land Surveyors are called upon to prepare four basic types of survey:

"1)Plans of Subdivision (M-Plan, Registered Plan, Condominium Plan) Upon registration in the Land Registry Office, these surveys divide property into lots or units and set out boundaries for the first time, after appropriate approvals have been obtained.

2)Reference Plans (R-Plans) These are deposited plans and graphical representations of descriptions, as well as representations of divisions of land under the Planning Act.

3)Plan of Survey This may be a reference plan, an undeposited plan in the form of a Surveyor's Real Property Report (SRPR), or a standard survey plan.

4)Surveyor's Real Property Report A Surveyor's Real Property Report (SRPR) is a legal document that clearly illustrates the location of all visible public and private improvements relative to property boundaries."*

One of the principal purposes of a survey is the division of property. Simply put, without a survey, property remains as one large parcel. It is only with a proper survey that it can be divided into smaller units.

So, let's start out with the process. A farm in the close suburbs may be comprised of 100 acres along a major roadway. It may have street frontage on two sides. If it were the entire concession lot, it would be exactly 200 acres and have four streets as boundaries. The dimensions would be one and a quarter miles by one and a quarter miles. Over the years, this large farm may have been broken into two 100 acre farms or even four 50's.

The next item is a large 150 year old farmhouse and small barns and outbuildings. When setting out to develop the property, the first item to check will be #3 a Plan of Survey. Does it show the boundaries and does it show the buildings? If matters are to proceed, a new and current survey will have to be prepared. This will be #4, the Surveyors Real Property Report. It will contain two pages:

1) a graphical representation of the property, and
2) an opinion from the surveyor.

The next stage will be to carve up the property into two pieces. Let's assume here that one acre is to remain with the farmhouse and to continue as a residential property, and the remaining 99 acres are to be developed.

Now we need an updated survey. So, we need to have a graphical representation that can be used to apply for a division of the lands into two parcels, one 1 acre and one 99 acres.

A surveyor will utilize the #4 Surveyors Real Property Report as the basis, and outline the two parts:

1) Part 1, being one acre with a farmhouse,
2) Part 2, being ninety-nine acres.

This particular survey will be taken before the Land Division Committee or the Committee of Adjustments, depending upon which committee has jurisdiction for severances in that area.

This particular survey is not "deposited". The term deposit is a reference to the fact that the survey might be "filed" or registered in a particular Registry Office. In this case, the survey is submitted to the municipality to go through the land severance process. At this point, there is no need for registration.

Let's assume that the severance is granted.

The surveyor then prepares a Reference Plan, known also as an R-Plan. It is taken over to the Registry Office to be filed. Upon the payment of the prescribed fee, the R-Plan is "deposited" in the office as a reference plan, or at least a plan that can be "referred to", if need be. The term "registered" is a term of art in the conveyancing business, so a similar but different term was required, hence: "deposited".

For ease of location within the office, it is given a number, ie. 241 (the next number in series at that office).

Now, we have a legal description that could be used for future conveyances, two parcels as follows:

1) Part 1, Reference Plan 241 (being one acre with a farmhouse),
2) Part 2, Reference Plan 241 (being ninety-nine acres).

So far, the farmer still owns the entire 100 acres. Nothing has happened yet. There are three choices in terms of conveyance:

1) the entire 100 acres using the old property description,
2) the one acre parcel, using Part 1 R-Plan 241, and
3) the ninety nine acres, using Part 2 R-Plan 241.

Actually, there's one more possibility and that is to use the new description to convey the entire 100 acre parcel. So, that would be Parts 1 and 2 R-Plan 241.

But, remember even though there has been an approval of the severance, there is no severance until there is a conveyance. The "approval" is of limited duration. It will expire in 12 months unless it is acted upon.

That means the farmer must convey either Part 1 or Part 2 separately to a third party. Upon registration of the conveyance which has the consent of the appropriate approving authority attached, the property consisting of 100 acres will be severed into two parcels, one acre and ninety-nine acres.

And, when it comes to dividing up the 99 acres, a plan of subdivision (#1) or M-Plan will be used.

* source The Association of Ontario Land Surveyors

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

Ontario Land Surveyor's Real Property Report

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Mon, 26 Oct 2009 17:35:33 -0500

Ontario Land Surveyor's Real Property Report Explained

By Brian Madigan LL.B.

A Surveyor's Real Property Report is a graphical representation demonstrating the location of all visible public and private improvements in relationship to the boundaries of the property.

It is a plan or illustration of the various physical features of the property together with a written report outlining the surveyor's opinion.

Usually, page 1 of the document is the plan and page 2 is the opinion.

The Surveyor's Real Property Report can be relied upon by the purchaser, the seller, the lending institution, and anyone else as an accurate representation of the property.

What is Included in a Surveyors Real Property Report (SRPR)?

· the legal description of the property.

· the address of the property.

· the dimensions and locations of property boundaries.

· the location of all buildings relative to property boundaries.

· the location of adjacent properties, roads, lanes, etc.

· the location and description of all pertinent improvements located on the property, along with the setbacks to the property boundaries. The projections of overhangs and eaves may also be noted.

· the type and location of any land-related encumbrances or interests on the property title including utility rights-of-way, roadways, neighbour's rights-of-access, etc.

· the location of survey bars marking the property corners.

· a note indicating for whom the plan is prepared.

· certification by an Ontario Land Surveyor.

· the Association of Ontario Land Surveyors' Plan Submission Form.

In a real estate transaction everyone is looking for a survey. But, the actual survey is the surveyor's opinion and that is "time sensitive".

A current survey means NOW.

An up to date survey means any old survey where there have been no changes. The problem here is how would you know that unless a surveyor expressed a current opinion.

So, what is a survey worth? Twelve hundred dollars is the standard cost for an uncomplicated survey of a reasonably sized residential lot. Or, ten cents is the cost of photocopying an old one.

However, you should remember that you might not be able to simply photocopy an old survey. Do you have permission? Is this an improper conversion and use of the survey contrary to the provision of the Copyright Act?

And, what was contained in the agreement? Did you ask the vendor to provide a survey of the property. That's available from the Registry Office for one dollar if the property is contained within a registered plan of subdivision.

Maybe you asked for a building location survey? That's better, but it could be old? Also, the vendor better have an actual survey. That means one signed by and sealed by an Ontario Land Surveyor. Forget about the ten cent photocopy! That's not good enough. Would you accept a photocopy of a twenty dollar bill as payment?

The up to date, or current building location survey is really what you are looking for. This is the Surveyors Real Property Report, two pages, the plan and the opinion, signed and sealed.

Yet many transaction are completed without such a document.

Please be careful and if you are a buyer know what you are asking for, and if you are a seller, know what you have in your possession.

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 Statements in Ontario Real Estate

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sun, 25 Oct 2009 14:02:48 -0500

The Seller Property Information Statement in Ontario

By Brian Madigan LL.B.

A friend and colleague, Bob Aaron writes for the Toronto Star.

Here's a link to his recent post about the use of the SPIS document

http://www.yourhome.ca/homes/columnsblogs/article/713888--honesty-won-t-resolve-disclosure-form-issues#

It is a very well-written article, and I agree with his comments 100%. By the way, I have published over 100 articles dealing with disclosure and the use of the SPIS Form.

Brian Madigan LL.B. (Sales Representative)

author and commentator on real estate matters

Royal LePage Innovators Realty

www.OntarioRealEstateSource.com

Review of Practices and Procedures ~ Toronto Community Housing Corporation

Brian Madigan LL.B. (Royal LePage Innovators Realty) — Sat, 24 Oct 2009 16:25:44 -0500

The Review of Practices and Procedures ~ Toronto Community Housing Corporation

By Brian Madigan LL.B.

The Toronto Community Housing Corporation announced that it would have a review of its practices and procedures in the wake of the death of Al Gosling.

You will recall that Al Gosling was the elderly gentlemen evicted from his apartment, who lived then in the stairway of the apartment building until he became sick. He was taken to a homeless shelter and then to hospital where he died.

The internal review is a good thing. However, the Coroner is investigating the entire incident.

So, while the internal review is helpful, it should not be used to placate the Coroner.

I would however applaud the TCHC on its selection of a Chairman of the Review Committee. It appointed The Honourable Mr. Justice Patrick Lesage. formerly Chief Justice of the Province of Ontario, who is best known for conducting the trial in the Paul Bernardo case.

Brian Madigan, LL.B.

author and commentator on real estate matters

Royal LePage Innovators Realty