SPIS ~ Kaufmann and Gibson

Disclosue: ice damming

This is a case involving the improper completion of the Seller Property Information Statement by the vendors.

The Kaufmanns resided in London Ontario and acquired their residence in 1981. They original house had been constricted in the 1950’s. They are sophisticated vendors, and although they were now in their ‘80’s both had practiced medicine.

They experienced a problem with “ice-damming” on their roof. They arranged for repairs which were completed in 2004 at a cost of about $12,600.00.

The purchaser became aware of substantial repairs that had been undertaken and decided to withdraw from the purchase. The vendors eventually sold their residence and instituted an action for the deficiency. Gibson, the purchaser counterclaimed for rescission.

The matter came on for trial in the Superior Court of Justice in Ontario before Mr. Justice Killeen.

Essentially, the merits of this case revolved around the interpretation of the proper completion of the Seller Property Information Statement by the vendor. It was customary to complete such a document in London, Ontario in accordance with the practice of the London Real Estate Board, although they are not mandatory.

The Kaufmanns met with Ms. Siskind , their agent and signed the SPIS. Dr. Kaufmann recalled that he prepared some handwritten notes for this meeting with Ms. Siskind .These notes include background data, such as repairs and renovations through the years, and a reference to the water damage in February 2004.

The SPIS – questions 7 to 9 – which addressed, directly or indirectly, the issue of water problems or damage read this way:

7. Are you aware of any moisture and/or water problems?

8. Are you aware of any damage due to wind, fire, water, insects,
termites, rodents, pets or wood rot?

9. Are you aware of any roof leakage or unrepaired damage?
Age of roof covering if known?

Each of these questions required yes or no answers in appropriate boxes, and Mr. Kaufmann ultimately checked each of them off with a “No”. He candidly admitted in direct examination that, on reading these questions, he thought he should include information about the water damage sustained in February. However, he said that Ms. Siskind dissuaded him from this disclosure by making two points:

  • first, the language of the questions was in the “present tense” and
  • second, there was no water problem at the time of the signing of the statement.

The result was that, following her advice, he answered the questions in the negative.

The Kaufmanns authorized the contractor to release its repair documents to Mr. Gibson, who was “flabbergasted” by the scope or extent of the repairs mentioned by the 11-page set of documents. he received. There were extensive repairs done, but he had no real assurance on the cause or causes of the water damage. The contractor told him there could be no guarantee that the water penetration would not re-occur.

Conclusions by the Court

I have decided to include verbatim the reasons for the decision. Here are the conclusions of the Court:

“[93] In my view, this case must be resolved within the specific context of the SPIS form and its impact on the agreement of purchase and sale.

[94] There is no dispute about the fact that Mr. and Mrs. Kaufmann agreed to sign the SPIS at the time they met with their agent…

[95] ….. Mr. Kaufmann was obviously conscious of what had happened in February at his home. In his notes for the meeting……he took the trouble to record the following: “Ice build up winter 2003-4 with complete restoration by Hickman-Mount.”

[96] At several points in his evidence he took pains to acknowledge he thought he should have mentioned the ice damming incident and repairs in the SPIS but ended up not doing so as a result of Ms. Siskind’s view that questions 7 to 9 spoke in the present tense and only required disclosure of water and related problems he was actually having on July 8.

[97] The matter continued to trouble him because he admitted he met Mr. Gibson at a garage sale and did not mention the 1997 and 2004 incidents because they might have thrown “cold water” on the sale. Also, at another point, in cross-examination, he candidly admitted that he wished he had added the language of the amended SPIS to the original one, adding “It was incomplete disclosure before.”

[98] ….. I cannot see how a rational argument can be made for a “present-tense” or “current” interpretation of questions 7 to 9 in the SPIS.

[99] The spirit and general purpose of the SPIS form is well stated in two introductory paragraphs of the form reading as follows:

ANSWERS MUST BE COMPLETE AND ACCURATE.


This statement is designed in part to protect sellers by establishing that correct information concerning the property is being provided to Buyers. All of the information contained herein is provided by the Seller to the Broker/Sales representative. Any person who is in receipt of and utilizes this Statement acknowledges and agrees that the information is being provided for information purposes only and is not a warranty as to the matters recited hereinafter even if attached to an Agreement of Purchase and Sale. The Broker/ Sales Representative shall not be held responsible for the accuracy of any information contained herein.

BUYERS MUST STILL MAKE THEIR OWN ENQUIRIES.

Buyers must still make their own enquiries notwithstanding the information contained on this statement. Each question and answer must be considered and where necessary, keeping in mind that the Seller’s knowledge of the property may be incomplete, additional information can be requested from the Sellers or from an independent source such as the Municipality. Buyers can hire an independent inspector to examine the property to determine whether defects exist and to provide an estimate of the cost of repairing problems that have been identified.

This statement does not provide information on psychological stigmas that may be associated with a property. For the purpose of this Seller Property Information Statement, a “Seller” includes a landlord and a “buyer” includes a tenant, or a prospective tenant.

[100] As can be seen in the opening words of para. 1, “ANSWERS MUST BE COMPLETE AND ACCURATE”. While this paragraph goes on to say that the answers do not constitute warranties, there cannot be any doubt that they can have legal consequences as representations, especially if they were read by the purchasers before submitting their offer, as here, and were then incorporated into the terms and conditions of the agreement.

One finds the following clause in Schedule A to the agreement confirming incorporation:

The Buyer acknowledges that the Buyer has received a completed Seller Property Information Statement from the Seller, attached hereto as Schedule B and forming part of this Agreement of Purchase and Sale and has had an opportunity to read the information provided by the Seller on the Seller Property Information Statement prior to submitting this offer.

[101] There is nothing within the preliminary two paragraphs of the SPIS suggesting that the various questions should be given any special or narrow reading and since paragraph 1 leads off with an admonition to vendors that their answers should be “complete and accurate” it is not unreasonable to infer that the questions should be given a plain, common-sense reading rather than a narrow or tortured one.

[102] The 16 questions in the key “Structural” section of the form are all open and plain questions which, as it seems to me, call for open and plain answers.

[103] Many of the questions start with the broad phrase “are you aware of” and then go on to mention “problems” of a variety of kinds.

[104] For example, question 1 asks “Are you aware of any structural problems?” This is broad language and cannot be realistically limited to structural problems on the day the form was signed.

[105] The three questions in issue – questions 7 to 9 — are similarly framed and cannot, in their plain terms, be said to only call for answers on a current or so-called present-tense basis.

[106] Question 7 asks about awareness of moisture or water problems; question 8 about damage due to water or other things; question 9 about roof leakage or unrepaired damage.

In other words, there are no suggestions in any of these questions about exact current conditions alone and they all speak of concerns about water problems in one way or another.

[107] To me it is patently impossible to give the narrow reading to these questions which the plaintiffs’ argument presents.

[108] What if the plaintiffs had had a flood in their basement through a cracked basement wall one month before July 8 and had had the entire basement repaired and cleaned up so that the damage problem was corrected? On the plaintiffs’ approach, disclosure would not be needed.

The mere asking of such a question, or a similar one, shows how wrong-headed the interpretive approach of the plaintiffs is.

[109] It seems that, in the past 10 years or so, similar voluntary disclosure statements to the one employed here have been adopted by real estate boards across Canada. Almost inevitably, they have given rise to litigation over their meaning and reach.

[110] One of the leading cases is Alevizos v. Nirula, 2003 MBCA 148 (CanLII), [2003] M.J. No. 433, 2003 MBCA 148 (Man. C.A.), a decision of the Manitoba Court of Appeal written by Chief Justice Scott. (This case was quoted with approval)

(Sections omitted)

[115] It is important to emphasize that, unlike the situation in Alevizos case, the defendant purchasers in this case took the trouble to incorporate the SPIS document directly into the terms and conditions of the agreement.

[116] In my view, this greatly strengthens the position of the defendants because they were relying on the SPIS, not as an outside document containing representations, but, rather, as a specific contractual commitment within the four corners of the agreement itself.

[117] I find as a fact that the SPIS answers in this case were clearly untrue on Mr. Kaufmann’s part and he knew them to be untrue when he answered “No” to all three questions and declined even to add some comments in the “Additional Comments” lines below the questions.

[118] With respect, Mr. Kaufmann cannot hide behind the back of his agent, Ms. Siskind, and evade legal responsibility by saying that he answered the questions as he did because of her advice. He must be answerable, in short, for his calculated non-answers.

[119] I agree…. that, once a vendor “breaks his silence” by signing the SPIS, the doctrine of caveat emptor falls away as a defence mechanism and the vendor must speak truthfully and completely about the matters raised in the unambiguous questions at issue here. In this case, the called-for truthful answers were an integral part of the contractual terms and the failure to provide truthful answers fully justified the defendants in refusing to close and asking for rescission of the agreement.

[120] The plaintiffs in argument, raised two points about the defendants’ conduct after the agreement had been signed which he said prevented their counterclaim from succeeding.

[121] First, it was argued that the waiver of the home inspection condition prevented rescission from being available to the defendants.

[122] The home inspection was, of course, conducted by Mr. Hiemstra on July 22 and Mr. Gibson was present with him as he examined the home. His inspection report disclosed nothing of consequence with the result that the purchasers signed a waiver of the condition two days later on July 24.

[123] I cannot accept (the plaintiffs’ counsel’s) submission that this waiver of the home inspection condition somehow means, at the same time, that the purchasers waived their right to rely on the untrue answers in the SPIS form, as incorporated in the agreement.

[124] It is a matter of obvious fact that home inspections may not discover things that are not visible to the naked eye and, in this home, the home inspection could not realistically discover what had happened in February and the repairs which had been done then. In fact, the Hickman Mount repair work had covered up what had happened.

[125] In short, there is simply no support for an argument that the limited waiver as to the home inspection should embrace the SPIS misrepresentations and eviscerate them.

(Sections omitted, not relevant to SPIS discussion)

[131] In sum, I conclude that the plaintiffs deliberately withheld information from the purchasers in the answers to questions 7 to 9 of the SPIS, information that was strongly relevant to the purchasers in deciding whether to sign the agreement. Since the SPIS form was incorporated in the agreement, the non-disclosure was tantamount to false representations as to the condition of the home and justifies rescission.

[132] An order will go dismissing the plaintiffs action, and an order will issue under the counterclaim declaring that the agreement is rescinded.”

COMMENT:

This case is particularly important because it deals with the SPIS document and basically outlines instructions on how to complete it safely. The document is to be broadly interpreted. Do not use a narrow focus. It is to be viewed from the perspective of what a purchaser would reasonably want to know. Forget about a narrow, technical meaning. That can only get a vendor and the vendor’s agent in trouble.

The document deals with issues and the past is quite relevant. It is certainly not to be forgotten. Do not impose a narrow, “today only”, “present tense” meaning on the case. That will expose the vendor to risk. Better to decline to complete the document at all, than to offer part answers or half-truths.

Brian Madigan LL.B., Brokerwww.OntarioRealEstateSource.com

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