Honest Vendor Escapes Liability in SPIS case
By Brian Madigan LL.B.
(Ontario Real Estate Source)
The case of Cotton and Monahan was tried in the Superior Court of Justice in Ontario over a 10 day trial, heard in December 2009 and January 2010. The reasons for Judgment were released 30 April 2010.
The Cottons bought a house in Brantford, Ontario from the Monahans. It is clear that the house had certain plumbing and electrical issues.
So, was there proper disclosure? Did the sellers properly shift the risk to the buyers, or do the sellers have to pay for the repairs? Interesting case, and this happens all the time.
Although it is not usually typical, both husbands, being the vendor-husband and purchaser-husband were "home handymen". Neither were professionally trained but both had acquired experience in renovations from undertaking projects and attending local hardware stores.
Facts related to the Purchase
The facts in each case are extremely important and they often distinguish one case from another
· The Cottons called their real estate agent Ms. Webster to find them a house in Brantford.
· They gave her specific instructions that they wanted a nice neighbourhood, large lot, not a "fixer upper" and one level.
· in the spring of 2006 the real estate market in Brantford was "hot".
· the listing agent, for the Monahan property was Ms. Monahan, the daughter-in-law of the vendors.
· Ms. Monahan showed the plaintiffs and Ms. Webster through the house.
· Monahan assured the plaintiffs there were no problems with the home as far as she knew and further indicated that even though there was only 60 AMP service, her in-laws ran all normal electrical appliances without difficulty and she was not aware of any electrical problems.
· I accept the evidence of Ms. Webster, who has 20 years of experience, that this house showed "beautifully", it was immaculate and in "mint" condition, in a very desirable neighbourhood.
· The plaintiffs viewed the house for 45-60 minutes and then immediately and privately told Ms. Webster they wished to make an offer.
· The offer was prepared for the full listing price of $299,900.00 with no conditions.
· Despite Ms. Webster's advice the plaintiffs insisted on not having a condition to allow for a home inspection.
· I find as a fact that Ms. Webster was extremely thorough with the plaintiffs in going over the offer to purchase and that they fully understood all of its terms and conditions.
· They were well aware that there had been no building permits.
· They were also well aware that there were no warranties pursuant to paragraph 24 of the offer.
· I accept Ms. Webster's evidence that the house was completely finished other than in the laundry room and nothing could be seen which she would classify as any type of obvious defect which should have raised a red flag for the plaintiffs.
· The only exceptions were 2 minor electrical issues in the ceiling of the laundry room, the electrical panel which the plaintiffs agreed they would have to upgrade to 100 AMP service and an extension cord coming out from an encased wooden pole to a lamp in the recreation room.
· Ms. Webster requested a Sellers Property Information Statement (SPIS) and that was provided in the early evening of April 17 prior to the plaintiffs' offer being presented.
· Ms. Webster went over each question thoroughly with Mrs. Cotton by telephone, including the fact that no building permit was obtained or inspection done regarding the extensive renovations to the home and that the plaintiffs should consider that.
· Ms. Webster and the plaintiffs knew prior to the offer being presented that the house was over 50 years old and the vast majority of the renovations were done by Mr. Monahan personally.
· I accept Ms. Webster's evidence that she advised the plaintiffs to wait a couple of days before presenting an offer so they could do further due diligence, specifically a home inspection which she felt was "imperative given the age of the house".
· The plaintiffs instructed Ms. Webster to present the unconditional offer the evening of April 17 which she did. It was accepted without amendment the next day with a closing date of June 30, 2006.
· The plaintiffs were entitled to inspect the property on 2 occasions before closing.
· They attended approximately 3 weeks after the offer was accepted with their 2 children and took numerous photographs to show family and friends. Furniture was still in place and the house looked identical to what it did on April 17.
· Ms. Webster recommended the second viewing by the plaintiffs just before closing. She reminded them to do this viewing but they did not.
· The house was virtually empty during the week prior to the closing.
· The listing agreement which the plaintiffs reviewed indicates "FULLY RENOVATED INTER. INC. REFINISHED HARDWOOD, CERAMICS NEW CARPETS..."
The Actual Physical Condition
As you probably imagined, there were some shortcomings in the building. A home inspection completed after the closing showed 17 electrical infractions. There were also plumbing and structural issues.
The defenadant, Mr. Monahan had undertaken most of the repairs and renovations himself, just shortly after they moved into the property in 2001.
Here are some comments by the Trial Judge:
· Mr. Monahan has no training in construction or as a renovator, other than what he has been self taught, learned from carpenters at work or knowledge acquired through friends and sales people at home renovation stores.
· The Monahans have 4 children. One son is disabled and confined to a wheelchair. Most of the renovations on the main floor of Queensway done by Mr. Monahan were to accommodate his then teenage son's wheelchair.
· They enjoyed those renovations, by all accounts, on a trouble free basis for the balance for approximately 4 years.
· There is no doubt Mr. Monahan did some work to this home that was not according to the building code. Some examples would include splitting wires not in junction boxes; attaching ABS plumbing pipes other than with proper couplings; not putting proper headers above widened door and window frames.
THE LAW
It is important to be in a position to apply the law to the facts in this particular case. The Trial Judge provides a good summary of the relevant law which he feels should apply in this sitution.
Here's a summary of some of the important points with citations omitted:
· In any discussion regarding the purchase of real estate one must start with the well known legal maxim: "caveat emptor".
· The starting point on an analysis of property defects would appear to be the often quoted phrase of professor Laskin:
"Absent fraud, mistake or misrepresentation, a purchaser takes existing property as he finds it, whether it be dilapidated, bug infested or otherwise uninhabitable or deficient in expected amenities, unless he protects himself by contract terms".
· "As the Laskin excerpt, above, states, in the absence of contractual terms protecting a purchaser, a vendor will be able to successfully assert cavet emptor against a purchaser in a claim by a purchaser arising from the discovery of a physical defect in a resale or commercial property purchase, unless the purchaser can establish fraud or misrepresentation."
· "A vendor who conceals a defect, so that the purchaser could not discover it, will be unable, however, to rely on caveat emptor because the defect was latent and the concealment by the vendor is considered to be misrepresentation or fraud." (Bradley N. McLellan)
· The issue still remains as to whether a vendor who is aware of a latent defect in a resale home transaction, but who does not conceal the latent defect, has any obligation to disclose the latent defect to the purchaser.
· The Court of Appeal of Ontario stated in obiter that there might be such an obligation in the following two circumstances:
1) a vendor may be liable to a purchaser with respect to premises which are not new if he knows of a latent defect which renders the premises unfit for habitation.
2) But as pointed out in [the Laskin article], in such a case it is incumbent upon the purchaser to establish that the latent defect was known to the vendor, or that the circumstances were such that it could be said that the vendor was guilty of a concealment or a reckless disregard of the truth or falsity of any representations made by him
· Justice Dubin said in that case "... I am prepared to assume that there is a duty on the vendor to disclose a latent defect which renders the premises dangerous in themselves, or that the circumstances are such as to disclose the likelihood of such danger, e.g. the premises sold being subject to radioactivity..."
· the vendor is not under a duty to disclose either latent or patent defects of quality.
· The onus is on the purchasers to prove on a balance of probabilities that there were latent defects with this property. They must further prove that these defects were known to the vendors and they purposely concealed them in order to sell their house or in the alternative there was reckless disregard of the truth or falsity of any representations made by the vendor regarding any defects known to them.
The Decision
The Trial Judge concluded that the pliantiffs had failed to establish liability on the part of the sellers. This is what the Trial Judge said:
"The plaintiff fails on all three criteria to ground liability:
a) The defects, I find as a fact, were not known to the vendors to be defects;
b) I find as a fact that there is no evidence to establish that the vendors purposely or knowingly concealed any defects;
c) I find as a fact that there was no conduct by the vendors of reckless disregard of the truth of any representations made. The vendors were not home during the initial inspection of the home. The vendors were asked no questions about the home. The vendors filled out accurately and truthfully the SPIS statement indicting no permits or inspections were done regarding any of the renovations. The agent for the vendors stated clearly and truthfully that as far as she knew there were no problems with the house. The vendors would have answered a similar question the same way. There was never any direct communication between the plaintiffs or their agent and the vendors.
The purchasers were fully aware that renovations had been done by the vendor, they were fully aware those renovations were not inspected nor was a permit obtained; they were fully aware the house was 50 years old; they were at liberty to have the home professionally inspected, they made a conscious decision not to; they could have insisted on moving appliances or anything else if they wished a better inspection; they could have insisted on further inspections by electricians, plumbers or engineers if they wished to make those inspections conditional on their offer and through Mr. Cotton's father they had easy access to individuals with such expertise.
They elected not to do so because Mr. Cotton had significant experience in renovations and felt confident in what he could see. Moreover, both Mr. and Mrs. Cotton wanted this home and did not want to miss the opportunity of purchasing it because of a conditional offer.
They made a decision to forego their due diligence. There was nothing done by the vendors to entice them into making an offer nor did they do anything to purposely or otherwise to conceal problems with the home nor give any misleading representations about their home.
In any event I find as a fact, that the purchasers did not rely on any representations made in the SPIS or by the vendors' agent.
Comment
These buyers were responsible for their own losses. They really didn't accept any advice from anyone else. They were subject to their own folly.
I have left in the recitation of the facts a good deal of the matters related to their own agent, Ms. Webster. She did an excllent job. She was not sued. She was careful in the advice she provided. In this particular case, her testimony was of substantial value to the defendants.
The steps she followed are classic in "how to avoid liability.
So, the defects were latent. The sellers did not recognize that the issues were indeed defects. They did nothing to deceive the buyers. They were open and honest in their dealings, and when the buyers undertook massive renovations to the property afterwards, they did so at their own expense.
You will notice that the Trial Judge made a determination of the case on the basis of contract law alone. He dismissed any potential liability that may have arisen in tort.
Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage
905-796-8888
www.OntarioRealEstateSource.com
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