Form 299: Latent Defects

OREA Form 299: do you like it, do you use it, do you rely upon it or does it mess you up a bit?

Form 299 is entitled “Seller Disclosure Latent Defect(s)”. However, the problem is that latent defects do not need to be disclosed. The Form itself would suggest to some individuals, both agents and Sellers that they do have to be disclosed. So, that’s problematic!

The Form says: “Members are encouraged to undertake numerous steps of discovery, disclosure and documentation of the same.” This “discovery process” presents some problems. This is not a legal requirement, this is simply an OREA statement. If you become engaged in a faulty process, then you face liability from the Seller, the Buyer or both.

There’s also one little problem with the description of the homeowner. The Form says “CLIENT/CONSUMER NAME:” So, that means either before or after the Listing is in place. Likely, you already have “implied agency” if you are discussing disclosure, but, if you were careful, you could avoid that. The obligations of the potential Seller do not change, but yours do! Your obligation only arises if you have an agency relationship. So, you have a choice and you should avoid that obligation to be on the safe side. It would have been helpful if OREA explained that, and stated clearly that this Form is to be filled out BEFORE you take on the Listing.

The key portion of the Form says:

“The Seller client hereby advises the Brokerage or Designated Representative of the following, which may be latent defect(s) or potential latent defect(s) of the listed property and consent to the Brokerage or Designated Representative disclosing the following to other persons, including co-operating brokerages or prospective buyer parties.”

Then, there’s a list:

• Property Structural Defects(s):
• Property System(s):
• Property Improvement(s)
• Other:

The above list is rather unusual when it comes to latent defects, namely the fact that there would really be any breakdown at all. Who cares whether a defect was an improvement or not?

Seller’s Signature

Oddly enough, there is no location for the Seller to sign. The specific wording is “I acknowledge having received a copy of this Seller Disclosure Form,” followed by the Seller’s signature.

The Seller signs that they have a copy, but there’s no spot for the Seller to actually sign. This matter will obviously be raised in litigation.

Legal Obligation

The legal obligation imposed upon the Seller is to disclose known, material latent defects.

The legal obligation imposed upon the Listing agent is to disclose known (both to them AND the Seller), material latent defects.

Latent Defect

This is something hidden, not visible or discoverable upon reasonable examination by a professional home inspector.

Material

It must be important and there are two tests of importance:

1. The defect must render the premises structurally unsound, or
2. Render the premises uninhabitable.

Known

So, the Seller has to “know” as does the agent. This means that if the Seller wishes not to disclose, then, they should consult with their lawyer, who is bound by their fiduciary duties to the Seller but the new TRESA legislation has no application.

The Listing agent should be careful here too. If they find something out, they should keep it quiet. Pass it along to the Seller’s lawyer, but, don’t tell the Seller. If they do, then, this matter requires disclosure.

This means essentially, no pre-listing home inspections which used to be quite common.

It is interesting that none of this information was included with the Form.

Using the Form can be risky unless you have done your research.

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com