Number 447, July 2011
PROPERTY DISCLOSURE STATEMENTS: BENEFIT OR BURDEN?
The real estate industry is in a furor over the recent decision of the Ontario Court of Appeal in Krawchuk v. Scherbak1; both the sellers and the real estate agent were found liable to the buyer despite disclosing past settlement of the home and despite the buyer's obligation to make enquiries of and investigate the property. The decision has caused some to question the utility of the Property Disclosure Statement (PDS).
Krawchuk sued the sellers for negligent misrepresentation regarding the property's structural condition based upon their completion of the Seller's Property Information Sheet (SPIS), Ontario's equivalent to the PDS. The sellers answered the question "Are you aware of any structural problems?" with, "NW corner settled," adding, "to the best of our knowledge the house has settled. No further problems in 17 years." The sellers also indicated they were not aware of plumbing problems.
At trial, the Ontario Supreme Court considered the sellers' information on the SPIS regarding the structural issues incomplete, since they knew problems had extended beyond the northwest corner, and the information regarding the plumbing false, as the sellers had experienced sewer line back-ups once or twice a year. The Court of Appeal agreed with the lower court's finding of liability against the sellers, on the basis that sellers who complete the SPIS must do so honestly, accurately and completely.
At trial, Krawchuk's claim of negligence against the agent, who acted as a limited dual agent, was dismissed. However, the Court of Appeal concluded that the agent had reason to doubt the accuracy and completeness of the sellers' representations and consequently, was negligent in failing to verify the representations or to recommend that Krawchuk have the home inspected either before making an offer, or as a term of the offer.
Krawchuk would likely have been decided differently in BC. Our courts have recognized the PDS for what it was designed to be; a tool to provide information about property to prospective purchasers. Where sellers establish they have answered the PDS honestly, to the best of their knowledge, claims against them are dismissed. Our courts have consistently held that absent fraud, completion of the PDS will not usurp the doctrine of caveat emptor, or relieve buyers of their obligation to investigate property they propose to purchase. Given the sellers' disclosure of past settlement (despite not experiencing any settlement for 17 years), the plainly visible signs of settlement, and Krawchuk's failure to make any enquires or to have the home inspected, the claim against the sellers would likely have been dismissed in BC.
The outcome against the licensee would also likely have been different had the case been decided in BC, given:
- Krawchuk knew that the agent was relaying information from the sellers;
- as a limited dual agent, the agent owed a duty to both the buyer and the sellers to act impartially;
- a home inspection condition was specifically discussed, Krawchuk knew the value of an inspection but decided against it to avoid the risk of her offer being rejected;
- Krawchuk's obligation, as buyer, to make enquiries about and to investigate the property she proposed to purchase; and
- the disclaimer in the disclosure form stating that "the broker/sales representative shall not be held responsible for the accuracy of any information contained herein."
Despite Krawchuk, the PDS remains a useful document for buyers and, if completed carefully, will continue to protect sellers and agents from claims of negligent non-disclosure and negligent misrepresentation.
To avoid liability like that in Krawchuk, agents acting for sellers who choose to complete the PDS should:
- explain to their clients the importance of completing the PDS accurately, honestly and completely and the risk of not doing so;
- make further enquiries regarding any information in the PDS of which they are in doubt; and
- advise sellers not to incorporate the PDS as part of the contract.
Buyers' agents should:
- remind buyers of their obligation to make enquiries about and investigate properties they propose to purchase;
- recommend the property be professionally inspected;
- explain the risks to the buyer of not having the home professionally inspected; and
- document all advice to buyers in writing.
Real Estate Errors and Omissions Insurance Corporation
| ||1. ||Krawchuk v. Scherbak.  O.J. 2064. |
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