SPIS and the Entire Agreement Clause

In 2007, the purchasers Adam and Olga Soboczynski bought a house in London, Ontario from Don and Louise Beauchamp. They had owned the house since 2001 and had not experienced any water coming into the basement.

They negotiated the sale of their house privately with the purchasers. The Soboczynskis did have the assistance of a real estate agent, who was their “friend” in this transaction but did not represent them.           

The buyers submitted an Offer conditional upon inspection. They arranged for a home inspector to examine the property and then waived this condition.

The buyers submitted a blank SPIS to the sellers. This was completed and returned before the home inspection condition was waived.

The trial Judge stated that the SPIS was not part of the agreement, was not attached to the agreement and was not referred to in the agreement.

As a result, the SPIS document was “alien” to the agreement and therefore fell within an exception to the Krawchuk decision.

Here is Judge Little’s conclusion:

·        The Agreement of Purchase and Sale had only two conditions as outlined in Schedule A attached;

·        Both were satisfied;

·        The S.P.I.S. was a separate document alien to the Agreement of Purchase and Sale;

·        The representations in the S.P.I.S. could not be relied upon because of the entire agreement clause in the Agreement of Purchase and Sale;

·        The flood on January 9, 2008, was a “one off” event and did not amount to an important change in the minds of the vendors at that time requiring notice to the purchasers in any event; and,

·        There was no prior problem with ponding or flooding on the property that was proven on a balance of probabilities.

Essentially, this decision appeared to be reached since the Judge preferred the evidence of the sellers.

This was part of the commentary:

[24]     As indicated, Mr. Soboczynski testified he told Mr. Beauchamp the S.P.I.S. was “part of the property inspection.”  Mr. Beauchamp denies this.

[25]     Where their evidence conflicts on this point, I prefer that of Mr. Beauchamp.  The Beauchamps did not sign the Offer back on the same day that they signed the S.P.I.S.  They wanted to discuss the signing of the S.P.I.S. with their lawyer, and had it been in their possession, they would no doubt have done so on November 21, 2007, when they saw their lawyer on the first occasion.

[26]     Further, incorporating the S.P.I.S. into the home inspection condition of the Offer, and thereby claiming it was part of the actual contract of purchase and sale, is not something that a non-lawyer purchaser was likely to consider in an effort to bring it within the “Entire Agreement Clause.”

In other words, the trial Judge thought that the buyer’s evidence on this point was contrived. This was just “too clever for words”. This also appears to have strongly influenced the Judge. 

Summarizing the Law, Judge Little said:

[58]     Killeen J. in Kaufmann v. Gibson, [2007] O.J. No. 2711 found that the statements in the S.P.I.S. could amount to non-contractual representations and found a tort of negligent misrepresentation.  However, he found solace in the fact that in that case trouble had been taken to incorporate the S.P.I.S. document directly into the terms and conditions of the Agreement of Purchase and Sale.

[59]     That is not the case here.  The S.P.I.S. in this case is not part of the Agreement of Purchase and Sale, nor the schedule attached thereto.  The law has evolved to such an extent that in the recently released case of Krawchuk v. Scherbak 106 O.R. (3d) 598 para. 73.  Epstein J.A. of the Ontario Court of Appeal highlights the fact that in that case the representations in the S.P.I.S. formed part of the offer and were “not alien to the agreement.”

[60]     In our case, the representations, if that is what they are, in the S.P.I.S. are alien to the Offer.  Thus, in my view, the Entire Agreement Clause in the Offer prevails to exclude those representations and the purchasers cannot rely upon them.

[61]     The S.P.I.S. does not form part of the Offer.  It was not incorporated into the condition relating to a home inspection because that was an inspection to be done independently by “an inspector of their choice.”

[62]     Even if the Soboczynskis had been entitled to rely upon the representations in the S.P.I.S., it is doubtful that the incident, which I find the Beauchamps believed to have been a one off incident, was an “important change to the information” requiring disclosure to the purchasers as per the wording of the S.P.I.S.

The sellers claim for damages was dismissed. The Judge also said that the leak through the window wells was a “one off event”, that occurred after the Offer but before the closing. It was never revealed to the buyers. The Beauchamps just cleaned up and kept it quiet. And, the Judge concluded that the water leakage was not an “important change” that required updating in the SPIS document.

COMMENT

This clearly seems to be a case of the Judge strongly preferring the evidence of the sellers over that of the buyers.

Judge Little was not impressed with the attempt to slide in the SPIS as a part of the waiver of the home inspection condition.

Why? It was not even shown to the home inspector! If it was that important, you would have thought that the buyer would have given it to the home inspector? Apparently, not!

So, this case stands as an exception to the Krawchuk decision.

This is a way to get around the Entire Agreement clause which states:

“This Agreement including any Schedule attached hereto, shall constitute the entire Agreement between Buyer and Seller.  There is no representation, warranty, collateral agreement or condition, which affects this Agreement other than expressed herein.”

If sellers can ensure that provision is applied, then there is no case in either contract or tort based on the SPIS.

Brian Madigan LL.B., Broker
www.OntarioRealEstateSource.com

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