Last week the Divisional Court upheld a trial decision in which the purchasers of a home were awarded $25,000 in damages from the seller.
The purchasers entered into an agreement of purchase and sale with the vendor and, smartly, made the deal conditional on the purchasers receiving a Seller Property Information Statement ("SPIS").
The SPIS is a standard form document that was drafted by the Ontario Real Estate Association. The SPIS will contain information relating to defects, renovations and other pertinent property information based on the seller's knowledge and experience. You can find a copy of the SPIS here.
Sellers are not required by law to complete a SPIS. However, according to the Real Estate Council of Ontario, once a seller has completed a SPIS their broker or agent is required to tell all potential buyers of its existence. Additionally, and in this case, if the buyer makes their offer conditional on a SPIS then from a practical perspective the seller either has to complete one, or not sell to that particular buyer.
In this case the vendor completed the SPIS and the deal closed. Within a month of closing the new homeowners discovered that whenever it rained anywhere from a few inches to a foot of water would accumulate in the backyard. This rendered a large portion of the rear yard unusable. The buyers sued for $25,000, the cost to obtain an engineering study and rectify the problem, and won at trial. The seller appealed.
On the SPIS the seller responded "No" to the question "Is the property subject to flooding?" It was not disputed that the seller actually knew of the backyard water accumulation problem. The seller tried to use a number of creative arguments to escape liability including that:
- technically the water was "ponding" and not flooding, as per the definition from the Conservation Authority, and therefore the question was answered truthfully;
- "property" meant the house, and not the yard, and therefore the question was answered truthfully; and
- the problem could have been detected through a routine buyer's inspection.
The trial judge was not buying any of it and found that the representation (the answer to that specific question on the SPIS) was untrue, inaccurate and misleading. He found that the seller would have used (as evidence) "whatever definition (of "flooding" and "property") would allow the seller to answer the question in the negative. He also found that the problem could only have been discovered on a routine inspection if it was raining during the inspection, and therefore was not discoverable during a routine inspection. On appeal, the Divisional Court agreed.
The law in Ontario relating to SPIS was settled by the Court of Appeal in 2011, in a case that John O'Sullivan blogged about on SLAW. In short, where the seller completes a SPIS it is assumed that the seller intends that the SPIS will be disclosed to prospective buyers to use to inform their decisions respecting the purchase. This creates the relationship necessary in law to hold a seller legally responsible if the information contained in the SPIS is wrong, either through negligence or fraud (deliberately), notwithstanding the large disclaimer that appears at the start of the SPIS.
Agents representing the seller are under an obligation to guide the client through the form and to provide specific warnings about the implications of completing a SPIS and the importance of ensuring that answers are complete and accurate. The warnings are to include the fact that by completing a SPIS the seller may be providing information that they are not legally required to provide.
The moral of the story, in my opinion, is that prudent purchasers should, at a minimum, ask the seller to complete a SPIS and prudent vendors should avoid voluntarily completing a SPIS without the buyer specifically asking.