disclose with bannerBy Bob Aaron

A Saskatoon real estate agent and his brokerage have escaped liability to the purchasers of a home with a wet basement in a misrepresentation lawsuit. Although they recovered their damages from the sellers, the unhappy buyers were ordered to pay the agent’s costs out of their own pocket.

Back in 2007, Carol and Donald Jacobucci bought a house in an upscale Saskatoon neighbourhood from Marleen and Patrick Prediger. The agreement of purchase and sale made it a condition of the deal that the sellers complete and deliver a Property Condition Disclosure Statement (PCDS).

The Predigers purchased the house in 2000 and lived in it until its sale to the Jacobuccis in 2007. The Saskatoon real estate market was very active when the property was listed for sale; the sellers’ real estate agent described it as “chaotic” and one where offers above asking price were common.

At the time the house was listed, the Predigers signed a PCDS at the request of their agent. It was a standard form in use at the time, although it was revised the following year.The form was mandatory for real estate agents to use.

One question on the form was, “Are you aware of any roof leaks or moisture or water problems or unrepaired water damage in the dwellings …?”

The Predigers answered no to this question.

Another crucial question was, “Are you aware of any past or present flooding or drainage problems on the property?”

To this the sellers answered yes, and added a comment reading, “July 2005 storm, slight seepage installed 2nd sump pump no trouble since.”

When the Jacobuccis took possession of the house in November 2007, they hired a carpet cleaner who discovered water problems and a bad smell. Water was found underneath the carpet in most of the basement, and some of the adjacent walls were wet, mouldy and smelly. It was clear that water was entering the basement through the concrete floor.

Eventually the basement carpet and all of the interior walls of the basement were removed. The wallboard, vapour barrier, insulation and some of the electrical installations had to be discarded. Due to the mould, the buyers moved out until the property was remediated.

The buyers sued the sellers and the listing agent last year, and the court’s decision was released in August.

Based largely on the evidence of the sellers’ real estate agent, Justice J. Duane Koch concluded that the water issue had to be treated in law as a hidden, or latent, defect. During that agent’s inspections of the property, he did not notice any water problems in the basement, but the judge noted, “It was not his job to be a wet basement detective. He was entitled to take the Predigers’ PCDS at face value.”

The judge concluded that the Predigers had made conscious efforts to conceal or at least minimize the extent of the damage “to the point of wilful deception.” They used at least one air freshener, without which the basement had a very strong smell.

Justice Koch was unable to accept Patrick Prediger’s testimony that there was no evidence of moisture when he moved out.

The court found the Predigers liable to the Jacobuccis for several specific misrepresentations and ordered them to pay damages to the Jacobuccis of $92,162 plus costs. The Jacobuccis, however, were ordered to pay costs of the sellers’ real estate agents, as there was “no reasonable basis to proceed against them.”

This case seems to establish a low threshold for an agent’s duty to purchasers when using the disclosure form, at least in Saskatchewan.

In reaching his decision, Justice Koch also quoted a 2003 decision of the chief justice of Manitoba, who wrote, “Based on the experience of those provinces that have employed the PCS, it seems to present a ripe ground for litigation.”

Bob AaronThe judge was correct. Without the presence of the disclosure form in this case, there would likely not have been a lawsuit.

Bob Aaron is a sole practitioner at the law firm of Aaron & Aaron in Toronto and a past board member of the Tarion Warranty Corp. He specializes in the areas of real estate, corporate and commercial law, estates and wills and landlord/tenant law. His Title Page column appears in The Toronto Star.  E-mail bob@aaron.ca

 

 

  • Jessica

    There was no inspection, the only ‘condition’ was approval of the PDS and the Buyer says she may or may not have even seen the PDS before the sale was complete. Furthermore, the ‘condition’ of approving the PDS was only open for 2 hours! Hot market or not….. the Buyers’ agent (their father) is the one who should be defending himself, not the Seller’s agent!

  • Kevin Starling

    Sellers should disclose as little as possible to avoid future liability for defects, however, Buyers would like every detail disclosed by the Seller. If a future problem arises they want the Seller “on the hook”. The problem in a slow market is this: If there are 2 apples for sale and each has a defect on its skin. One Seller warrants there was a worm trying to get inside his apple but there’s no interior damage and the other Seller warrants nothing. Which apple will sell quicker and for likely more money?

  • Roberta

    I’m sure the Buyers were happy there was a disclosure form! As Mr. Aaron pointed out – there would likely not have been a lawsuit and it was clear the Sellers were hiding the defect. The bigger issue here is that if the Seller’s had not lied – there would have been no lawsuit and the Buyers would have had to pay to correct the Seller’s lie.

  • G. Smith

    The full transcript of this case can be found at http://casealert.canadalawbook.ca/summaries/pdf/12250247.pdf. The buyer’s representative was the buyer’s father so that could explain why he wasn’t involved in the court case. This is an obvious case of an undisclosed material latent defect and would likely have resulted in legal action without the prescence of a seller disclosure statement. The law is clear that a known material latent defect must be disclosed.

  • Ron

    The agent cited in the article is the seller’s agent. How did the buyer ‘s agent fit into this? What did he do to protect his clients? Was there s home inspection and if not why not? Was this dual agency or an unrepresented buyer? I don’t think the article deals with the agents responsibility to the purchaser. I believe it is more an indication that the agent should not be responsible for willful deceit by his clients.

  • Carlo

    Seems to be that these forms are designed to protect REALTORS from dubious sellers.

    • Bob

      As far as a Real Estate agent is concerned they are 100% there to protect them first then the buyer.

  • Afsar

    Not to mention the misleading title. He did not ‘escape’ but rather did his diligence and was protected in doing so.

  • Watson

    No Home inspection = you deserve it.

  • Steve

    It sounds to me as if this lawyer, Bob Aaron, is most disappointed that the Judge did not blame the Real Estate Agent. His comment about a low threshold for an agents duty to the Buyer when using the disclosure form is a little odd.
    The onus is on the Seller to be honest and this form saved the agent from being blamed. The Seller knows 100% what the issues are or have been and like the Judge said earlier – agents are not wet detectives.