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