There is a clause that some Buyers representatives seek to include in an Agreement of Purchase and Sale. At first, it seems somewhat innocuous, but on further reading, should you agree to it?
This is what it says:
“The Buyer acknowledges that the Seller Property Information Statement (OREA Form 220) for the subject property has not been completed by the Seller and accepts same. The Seller acknowledges that whether or not the Seller completes a SPIS, the law requires the Seller to disclose to the Purchaser any material defects in the property of which the Seller has knowledge. In addition, the Real Estate and Business Brokers Act, 2002 requires registrants to determine and disclose “Material Facts” when a Buyer is purchasing a property.”
Let’s look at the clause sentence by sentence:
1)
“The Buyer acknowledges that the Seller Property Information Statement (OREA Form 220) for the subject property has not been completed by the Seller and accepts same.”
This is probably Ok. It’s just an acknowledgement which confirms that there is no SPIS for the property. It is an acknowledgement by the Buyer, so from that perspective, it doesn’t appear that there is any risk to the Seller.
2)
“The Seller acknowledges that whether or not the Seller completes a SPIS, the law requires the Seller to disclose to the Purchaser any material defects in the property of which the Seller has knowledge.”
This statement is somewhat problematic. It is a clear misstatement of the law. The obligation on the part of the Seller is to disclose latent defects, known to the Seller which render the premises structurally unsafe, or which render the premises unfit for human habitation. That is substantially narrower than the statement which we have here.
So, is it the intention of the parties, both Buyer and Seller to broaden the scope of responsibility on the part of the Seller by this contractual term? It would certainly seem so.
3)
“In addition, the Real Estate and Business Brokers Act, 2002 requires registrants to determine and disclose “Material Facts” when a Buyer is purchasing a property.”
This is a broad statement, and again misstates the law. The relevant law is found in the Code of Ethics, not the Act, and states as follows:
Material facts
21. (1) A broker or salesperson who has a client in respect of the acquisition or disposition of a particular interest in real estate shall take reasonable steps to determine the material facts relating to the acquisition or disposition and, at the earliest practicable opportunity, shall disclose the material facts to the client.
(2) A broker or salesperson who has a customer in respect of the acquisition or disposition of a particular interest in real estate shall, at the earliest practicable opportunity, disclose to the customer the material facts relating to the acquisition or disposition that are known by or ought to be known by the broker or salesperson.
You will notice that the obligation concerning clients is to take “reasonable steps”. The clause was unequivocal. The purchaser would have to be a client, not a customer and not a third party member of the public. The public duties would apply in terms of the relationship between the Seller’s agent and the Buyer.
Also, when it comes to a customer, the obligation is somewhat less. It is based on “known or ought to be known material facts”. And, that’s the obligation from the Buyer’s registrant to the Buyer, not the Seller’s agent to the Buyer.
This particular statement really cannot bind someone who doesn’t sign the agreement, and that would be the two registrants. So, whatever the law may be, even if it is misstated, it wouldn’t affect them.
But, the outstanding question is whether it would apply to the Seller himself, should he have knowledge of what his own agent either knows or should know?
In any event, even though this part of the statement is rather poorly worded, it would be better to simply delete it, rather than have it as a contractual term.
Don’t sign it, scratch it out, or just delete it!
Brian Madigan LL.B., Broker