Basement leak
This is another case in the line of improperly completed Seller Property Information Statements by vendors.
Briefly, the purchaser Rhonda Usenik wanted a good house that was in good condition and largely maintenance free. She saw the vendors’ property and it seemed quite suitable. They made use of the basement but the purchaser intended to rent out the basement for additional income to help supplement the cost of the house.
The vendors were looking to downsize from their property which was located in Thunder Bay, Ontario.
The vendors completed a SPIS that included the following:
Environmental: item #3: “Is the property subject to flooding?” answer: “No”
Improvements And Structural: item # 7: “Are you aware of any moisture and/or water problems?” answer “No”
Prior to completion of the transaction, the purchaser inspected the property on a number of occasions, personally, with a friend, with her realtor and with her home inspector. There was no evidence of moisture.
The vendors met with their realtor and completed the Seller Property Information Statement with him. They say that they advised him that a number of years previously there had been some trouble with water in the basement but that they had fixed the problem and had not experienced any difficulty since that time. They say that the realtor advised them that since the problem had been fixed there was no need to mention it.
The purchaser’s offer was conditional pending the home inspection report. This report noted a general disclaimer about the presence of moisture and offered some comments with respect to preventive measures. It did not note the presence of moisture.
The Offer was firmed up, the deal closed, the purchaser fixed up the basement and rented it out to tenants. And, as you probably suspected, the basement leaked. The vendors had to admit that there had been a water problem some 9 years earlier in 1995, but they thought that the problem had been fixed. Apparently, not!
Analysis by the Court
The matter was heard in the trial division of the Superior Court of Justice of Ontario over a six day period. The Judge commented:
Are the vendors liable in damages for misrepresentation?
There are three kinds of misrepresentations or erroneous statements:
· Fraudulent statements,
· Negligent statements,
· Inadvertent or innocent statements.
Only the first two types of statements attract liability.
Neither torts nor contract provide a cause of action for damages for innocent misrepresentations.
A fraudulent statement is a statement of fact which is false, made by a person knowing it to be false or made so recklessly that the person does not care whether he is speaking the truth or not.
Were the Statements False?
Yes, one or more of the statements was false.
The questions asked caused the vendors some uncertainty. They consulted with their real estate agent. The questions were phrased in the present tense: “Is the property subject to flooding?”. They interpreted this to mean “Is the property NOW subject to flooding?”. But the truth of the matter was that while it may not now be flooding it was subject to flooding, ie. it was “liable or exposed or prone to…”
Were the false statements made fraudulently, that is with an intent to deceive, knowing they were false or recklessly, not caring whether they were false or not?
“No, they were not.
However, I cannot say that even on the civil standard, the purchaser has established that the vendors had that degree of a “wicked mind” envisaged by out definition of civil fraud.”
Were the false statements made negligently?
“Yes, the false statements were made negligently. In the words of the General Confession of the Book of Common Prayer they did “that which they ought not to have done and failed to do that which they ought to have done. . . .”.
“Having embarked upon answering the questions asked the vendors should have followed their instincts and disclosed the previous problems, explained the solution to the problem and explained what would happen if the downspouts were not handled properly. Their failure to elaborate in this matter has brought them to grief.”
Did the plaintiff rely upon the defendants’ misrepresentation?
“I am satisfied that the purchaser relied upon the vendor’s misrepresentation. It is argued that she actually acted upon the report of her building inspector. She did indeed rely upon it as well. But these statements by the vendors were important to her and, in the absence of any contrary evidence, she acted upon them.”
Was the false statement a material cause of the act of the plaintiff, ie., has it been shown on a balance of probabilities that the plaintiff would not have acted to her detriment had it not been for the false statement made by the defendant?
“Can it be said that even if the vendors had not made the statements they did the purchaser would have bought the property and found herself in the same predicament? Again, this is a question to be determined on a balance of probabilities. The purchaser was a discriminating purchaser who had inspected many homes. “Hassle-free” living was her objective. I am satisfied that but for the misrepresentations the purchaser would not have bought this house.”
Decision of the Court
After making a finding of negligence and concluding that the plaintiff relied upon the vendors’ statement to her detriment, the Court then proceeded to assess the damages in this case. Damages in tort were awarded rather than damages in contract.
Compensation is to be assessed to redress damages suffered and not to restore the fabric of the house to the condition the purchaser anticipated it to be in.
COMMENT:
This is another interesting SPIS case. You will note that purchasers have more success in the higher Courts. In Small Claims Courts the case are handled quickly and there is often insufficient evidence to prove negligence. The cases are resolved on contract principles and often dismissed. This was a six day trial in Superior Court. Costs frequently run in the vicinity of about $20,000 /day for such a trial.
You might wonder about the real estate agent! Well, the vendors took third party proceedings against him for negligence in the provision of his advice not to mention the moisture. It was repaired and it was in the past. That case was settled on the eve of the six day trial. So, from the perspective of the real estate agent, he did not get off the hook, but he was not liable for the costs of a six day trial. All in all, that was a smart move.
And, don’t forget about the home inspector. He was sued too, but the Court dismissed any liability as against him. He made a smart move too. He represented himself in Court, so he had no heavy daily counsel fees, however, he did lose six days of pay.
Bob Aaron, a noted Toronto real estate lawyer makes the following comment about this particular case in one of his articles: “For home sellers, the prime lesson to be learned from the case is never – ever – sign an SPIS form. The problem is that the form currently in use in Ontario is far too complex and misleading for lay people – and many real estate agents – to understand and complete properly.”
I have to agree with Bob, this is a complex and difficult form to fill out. Real estate agents really have limited knowledge when it comes to tort law, negligent statements, liability arising from such statements and so on. It’s not in their course curriculum, so it would be difficult for the average real estate agent to know. This type of information is available within the industry at the continuing education level. Let’s hope that most agents take such a program before they offer the advice on their first SPIS form.
Note: This article was originally published over a decade ago. The SPIS has now fallen into disuse.
Brian Madigan LL.B., Broker