Disclosure Documentation for Known, Latent, Material Defects under TRESA

We all know that there is a brand new obligation arising under TRESA, and that is the disclosure of known, latent, material defects by the Listing agent.

This is not the case until TRESA Phase 2 comes into force on 1 December 2023.

Once, it is “in play”, the disclosure will have to be made. Right now, it’s still “caveat emptor”. The obligation is placed upon the Buyer and the Buyer’s agent to find out. After 1 December 2023, a Buyer or their agent could sue the Listing agent for failing to disclose.

The New Law under TRESA

“22.2 (1) If a seller has a legal obligation to disclose a fact to the buyer and the fact is known to the broker or salesperson who represents the seller, the broker or salesperson shall disclose the fact to every buyer who expresses an interest in the real estate.”

Seller’s Obligation

The Seller’s obligation to disclose is limited to known, material latent defects.

First, the Seller actually has to have knowledge.

Then, the defect must be latent, not patent. If it is in clear view, then the Buyer, the Buyer’s agent or the Buyer’s home inspector should be able to see it quite easily.

A latent defect will be something not easily found or discoverable upon examination. There’s no obligation (or right) to start pulling apart the walls to find something.

Then, the next test is whether it is material. That means “important enough” to warrant disclosure. It reaches that criteria if:

1. The defect renders the property uninhabitable, or
2. Structurally unsound.

So, there’s mould and termites in the house, but the Seller doesn’t know about them.Then, there’s no obligation for disclosure. The long time homeowner knew about the problems but passed away. The sale is being handled by the Estate Trustee who has no knowledge. Again, there’s no disclosure obligation.

How significant are the termite and mould problems? They would have to be significant to crossover the material fact criteria. A couple of termites or a little bit of mould would not have to be disclosed.

Listing Agent’s Duties

The new duties under TRESA only “kick in” if the Listing agent also has “knowledge”. This naturally is “in addition” to the Seller.

Let’s presume that the Listing agent goes downstairs and sees both the mould and the termite trails. Do they have to tell? No, they only have to tell, if their Seller has an obligation. But, the Seller actually doesn’t know about it. So, they should obviously “keep quiet”.

Latent, Material Defects Requiring DISCLOSURE

Let’s presume that we have met the threshold disclosure requirements. What should the Listing agent do?

• First, tell the Seller.
• Second, obtain the Seller’s permission to disclose.
• Third, document the facts and the consent.
• Fourth, disclose the facts to the Buyer and/or the Buyer’s agent.
• Fifth, document the disclosure,
• Sixth, get the recipient to acknowledge receipt of the disclosure,
• Seventh, give the recipient a copy of the document.
• Eighth, deliver a copy of the document to the Seller.

The Steps

The steps were all set out in TRESA:

“22.2 (2) The registrant shall make best efforts to obtain a written acknowledgement from each buyer who receives the disclosure under subsection (1) indicating that the disclosure has been received and, if a buyer makes the acknowledgement, provide them with a copy.”

Seller’s Document

We have to have a document from the Seller authorizing the disclosure otherwise, this is a breach of the Listing agent’s fiduciary duties. Those particular duties at risk would be: disclosure, obedience, competence, confidentiality and a loyalty.

The consequences for a breach would be:

1) termination at the election of the Seller,

2) no payment of compensation at the election of the Seller.

Neither of those are good, so let’s document the disclosure and obtain “permission”. Now, there’s no breach!

At the present time, OREA has not released any Forms which would deal with this type of disclosure.

Let’s consider, in the meantime, using something along these lines:

                                      “Latent Defect Disclosure

Re: 123 Main Street, Toronto, Ontario

Under the Trust in Real Estate Services Act, effective 1 December 2023, the Listing agent is obligated to disclose to the Buyer, and/or the Buyer’s agent, certain latent defects, known to them, should the Seller have a legal obligation to do so.

The following defects have been identified for disclosure:

1. Certain termite trails in the basement, in the furnace room,
2. Mould in the bathroom behind the cabinets in the basement.
3. ____________
4. ____________
5. ____________

The Seller, John Smith, hereby authorizes Paul Hewson, Broker with ABC Brokerage to disclose such information noted above.

The Seller acknowledges that Paul Hewson has recommended that legal advice be sought concerning such disclosure.

Dated at Toronto, this 1^st day of December 2023

___________________                                       ___________________

Witness                                                                 John Smith (Seller)

ACKNOWLEDGEMENT

The undersigned prospective Buyer hereby acknowledges receipt of a copy of this Disclosure document,

Dated at Toronto, this 1^st day of December 2023

___________________                                       ___________________

Witness                                                                 Raymond Burr (Buyer)”

A document along the lines of the one noted above would be suitable for such a disclosure, authorization and acknowledgement.

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com