By Matt Maurer

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:

1. “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.”

Answer: “Unknown”

2. Are there any existing or proposed waste dumps, disposal sites or landfills in the immediate area?

Answer: “Yes”

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.

11 COMMENTS

  1. I suspect that in reality the headline that would be more relevant to this story would be:
    “Court Decision Expands Risks of Buying FSBO Disguised as Mere Posting”

    As I see it, there should only be one reasonable explanation as to why the Ontario Superior Court would have essentially treated the subject of Registrant/ REALTOR Representation as a “moot point”, in the subject matter, and that would be because it was a “moot point” — meaning, the Seller was only a Customer (mere posting) of the listing brokerage, and also, the Buyer’s dealt directly with the Seller. In the original filings, the listing Registrant / REALTOR and Brokerage was “cross claimed” in this matter, but excused prior to trial. The only other possible plausible, but unlikely, explanation for excluding the listing Registrant/ REALTOR and brokerage from the matter, would be security considerations around the “witness protection program”, in relation to a prior and unrelated matter.

    In any event, the way that the subject Case Summary is worded should be of profound concern to CREA and organized real estate in general, because it demonstrates the possibility for serious additional harm to our Trademark entities. A full read of the Case Summary should cause anyone to seriously question REALTOR value, as depicted in this instance. A real estate consumer can’t be expected to draw any conclusions around the Registrant/ REALTOR Agency Relationships in these situations — especially in the absence of confirmation as to the precise nature of those Relationships. Situations like this one have the potential to cause serious harm to CREA’s trademark entities, as a result of what amounts to insidious negative advertising against our industry, as a result of being connected to such a: Court Decision, so worded, Case Summary.

    When CREA and organized real estate contemplated the potential effects that “mere postings” could have on our industry and trademarks, it’s inconceivable to me that had they contemplated this subject eventuality that we ever would have signed the “Consent Agreement”.

  2. The only surprising thing about this article is that the author seems to suggest that it would have been better if seller had been able to lie and get away with it. The result of the sellers answer to question 2 reminds me of my last fortune cookie which read ” a half truth is a whole lie.”

  3. The age old debate. Lawyers say don’t cimolete one, OREA prpares a template, REBBA 2002 says we need to ask pertinent questions and RECO will not give an opine either way. Disclosure is always the right thing to do. The property likely should have sold for less given the situation. In this case it sounds like the disclosure was vague. the SPIS is likely not the problem. A thoughtfully completed SPIS is usually a good thing for the buyers and the sellers.

  4. I was informed by someone that writes regularly in the REM from a more legal perspective, that if a seller property information statement had ‘for information purposes only’ marked at the top and check marks used instead of initials in the columns (while still providing honest and accurate answers to the best of the seller’s knowledge) and the document remained unsigned by the seller, that this would at least be providing honest information to the buyer but it would not be considered a legal document that formed part of the purchase agreement. I wonder if this is still the case?

  5. This story/ article would only be a significant story if the Ontario Superior Court hadn’t ruled precisely the way that they did. Should a Registrant or Practitioner be the least bit surprised by this ruling, you should probably be just as surprised to see your own reflection in a mirror!

    The pertinence of the SPIS as it relates to this subject story is almost incidental under the circumstances conveyed here. This particular incident, in my opinion, is an example of where an SPIS should have been in the Seller’s best interests — inside a full-Agency working relationship with a competent Registrant/ REALTOR. Under the circumstances described, it would seem rather obvious that the Seller had an obligation to disclose whether they had completed an SPIS or not — because, it would be reasonable to believe that as the original owner a Seller should have been aware of the type of latent defect at issue, and in this case the author of the subject article has confirmed that they were.

    Regarding the authors following statement: “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.” is said from a lawyers perspective – which is fine, but it doesn’t take into consideration the unique obligations of a REALTOR inside a Full-Agency Working Relationship, particularly in the sense of a REALTOR’s distinct obligation to discover facts! The subject story consequently has a very limited value to us, as Practitioner’s or Registrants — without knowing the full story and context around the nature of what the Registrant or Practitioner Agency Representation was or wasn’t.

    The circumstances as described in this article, seem more consistent with neither the Seller nor the Buyer having had REALTOR Representation inside a Full-Agency Client Relationship. I find it difficult to believe that RECO wouldn’t seek to drive a boot in a Northerly direction threw the Southern orifices of any Registrants who were representing consumers as Clients, in a trade of this precise nature. Alternatively, were a property listing such as this, but a “mere posting” and it was one of those such listings where unlike back in the good-old-days (summer of 2010) the listing brokerages Registrant/ Practitioner hadn’t bothered to meet the Seller or the home, I could understand, at least, the listing side unfolding the way it apparently did.

  6. I don’t understand this storey. Was the listing a “mere posting”? Is that why the listing REALTOR didn’t tell the Seller that they would do the proper disclosure, of the latent defect, whether the Seller did or not?

    • Regarding the subject (Ménard. v Parsons, 2015 ONSC 4123 [CanLII]).
      When you read the online Case Summary details, it is confirmed that the listing Registrant/ REALTOR and the listing Brokerage were released from the legal proceedings before the subject trial began. There is only ever any mention of the listing REALTOR(s) and brokerage. There isn’t really any mention of Registrant/ REALTOR representation — beyond the fact that the listing Registrant/ REALTOR is supposed to have advised the Seller to amend the SPIS (after the failed transaction) to include mention of the landfill site, but the amended text for same (as displayed in the CanLII summary) was challenged by the presiding judge — which, should call into question if the listing REALTOR was aware of how the Seller had worded the revised disclosure. The Case Summary, at every turn, seems to depict the Buyer’s dealing directly with the Seller.

      Should it be the case, that the subject property listing was in fact a “mere posting”, I would find this to be of far more interest to our industry than what was presented as the main topic of the subject article.

  7. The easiest way to get around your legal and membership obligations to ask for an SPIS to be signed by your seller is to have them contact their lawyer before completing one. You can address the risk inherent in the forms and let them know that because so many court cases have now been rendered on them, that it is best they gain legal advice before completing one. Ideally you should have them sign off acknowledging your instructions that way you can’t challenged at a later date for failing to give them the proper advice.
    On the Buyers side the SPIS should never be relied upon and since the rules require you to supply it to your Buyer if one was completed, again having the buyer sign off that you are suggesting their lawyer reviews the SPIS before a firm offer is rendered, your due diligence and REBBA requirements can be satisfied.

    If your broker owner has not made this part of the business practices of the brokerage, you should probably be moving on to another that does.

  8. The SPIS is not the problem, They misled the purchaser. As I tell my kids..not saying the whole story in the hope of misleading is LYING.

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