The Ontario Superior Court has once again underscored how completing a seller property information statement (SPIS) can be a risky move for vendors.
When it comes to the purchase and sale of real estate the starting point for any analysis is “buyer beware”. For those looking to impress at cocktail parties, the specific expression is “caveat emptor, quit ignorare non debuit quod jus alienum emit,” which translates into “let the purchaser, who is not to be ignorant of the amount and nature of the interest, exercise proper caution.”
This general rule of buyer beware applies to defects that a purchaser could have discovered by means of a routine inspection (known as a “patent defect”) and also “latent defects” (those not discoverable by routine inspection, which are unknown to the vendor).
Notwithstanding the purchaser’s obligation to do their own due diligence, the rule of buyer beware goes out the window once the vendor has made a misrepresentation.
A SPIS is a standard form document that was drafted by the Ontario Real Estate Association. It will contain information relating to defects, renovations and other pertinent property information based on the seller’s knowledge and experience.
A vendor is not obligated to complete a SPIS and if the vendor elects to do so they open themselves up to significant legal risks.
The law in Ontario is that once a vendor completes a SPIS it creates the relationship necessary in law to hold a vendor legally responsible if the information contained in the SPIS is wrong or misleading. Although the buyer has a duty to investigate, the buyer is not required to challenge the honesty of the vendor and is entitled to rely on the representations made by the vendor as though they were true.
A recent decision (Ménard. v Parsons, 2015 ONSC 4123 [CanLII]) illustrates how the courts are willing to expand the vendor’s obligation to make full and fair disclosure once they have elected to complete a SPIS.
In Ménard, the property in question was a beautiful home that had been constructed by the vendor on two large manicured lots. The only catch is that the home was built on top of a discontinued landfill site, a fact well known to the vendor.
The vendor completed a SPIS. The two pertinent questions and answers for the purpose of the litigation were as follows:
- “Are you aware of possible environmental problems or soil contamination of any kind on the property or in the immediate area? E.g.: radon gas, toxic waste, underground gasoline or fuel tanks etc.”
- Are there any existing or proposed waste dumps, disposal sites or landfills in the immediate area?
Of particular interest for this article is how the court treated the answer to question number two.
Around the time of the transaction there was a “notorious battle” in town and the surrounding area concerning the prospect of a chemical disposal site being constructed. This battle was constantly in the local news. The purchasers testified at trial that they believed the answer to question two to be in reference to the proposed chemical disposal site. The court held at trial that answering “yes” without any further explanation in the circumstances of this transaction was misleading to the point that it constituted a legal misrepresentation.
The purchasers discovered the existence of the discontinued landfill prior to the closing of the transaction and refused to close. The vendor ultimately sold the property to another purchaser for $100,000 less and sued the initial purchasers for the loss. The court dismissed the plaintiff’s claim and awarded the initial purchasers their out of pocket expenses in respect of the aborted transaction for a number of reasons, including the misrepresentation that was held to have been made in respect of question number two.
Again, vendors are under no obligation to complete a SPIS. In doing so, vendors open themselves up to liability and displace the fundamental principle of buyer beware.
The Ménard decision and the court’s treatment of the answer to question number two is demonstrative of the risks that vendors expose themselves to by completing a SPIS.
© 2015 REM Real Estate Magazine