An Ontario court decision released last month serves as a potent reminder of the dangers of using a Seller Property Information Statement (SPIS) when selling real estate.
In December 2003, Paul and Judith Riley signed an agreement to buy a home in Tavistock from John and Kimberley Langfield.
Prior to signing the offer, the sellers completed and delivered to the buyers an SPIS on a standard real estate board form.
The form, in wide use throughout parts of Ontario, asks questions about the condition of the home. It states that the answers are being provided for information purposes only and are not warranties. It also warns that sellers are responsible for the accuracy of all answers.
In the Tavistock transaction, the sellers stated in the SPIS that there were no defects in any included appliances or equipment, that the fireplace was in working order, and that the sellers were not aware of any problems with the swimming pool or any moisture or water problems in the basement.
After the closing in April 2004, the purchasers discovered a "flood" in the basement and some of their possessions were destroyed or damaged by the water. They also found that the swimming pool filter and pump were not working.
That summer, a public health inspector visiting a house under construction next door discovered a pipe coming from the Riley property containing raw sewage. He also discovered an abandoned well.
The inspector ordered the Rileys to install a new septic system and fill in the abandoned well.
Fortunately, the Rileys' title insurance policy paid for those costs.
When the extent of their other losses became clear, the Rileys sued the Langfields for damages of $97,500, claiming misrepresentation and breach of contract. The trial took place in February in Kitchener before Justice Donald J. Gordon.
After hearing all the evidence, the judge dismissed the claim for damages to the basement and awarded the Rileys $2,100 for the costs of repairing the pool and the gas line to the fireplace. Legal costs for the lawyers on both sides for the five-day trial could easily have reached $100,000.
The most interesting part of the judge's decision is his criticism of the realtors for each of the parties, for their lack of "any due-diligence inquiry" and especially their failure to take action with respect to the possibility of water problems.
"Realtors are expected to provide advice and direction to their clients," the judge wrote. "They are paid to act as professionals. They are not simply tour guides walking through a residence. The cavalier attitude of both realtors with respect to the SPIS is troubling. The purpose of the SPIS is not to protect realtors from liability. They have a due-diligence obligation."
Lawrence Bremner practises real estate law at Gowlings in Hamilton and is an authority on the use of the SPIS form in Ontario. He is also a director of the Real Estate Council of Ontario, the governing body of Ontario real estate agents.
Bremner emailed me last week to say that the SPIS forms "are used in most of Ontario, in part, to protect agents – but they fail miserably in that regard.
"They are litigious," Bremner wrote, "as they ask simple questions that require complex answers and ask questions that many lay people don't understand and they ask sellers to disclose more than they are required to do.
"The simple fact is that if the seller gets sued, then the agent and the broker will be joined in the action" for their role in using the forms.
I've said it before, if your agent insists on an SPIS, get another agent or hire a good litigation lawyer. Based on the flood of new cases involving the use of the SPIS, chances are increasingly good that you'll wind up in court.
Bob Aaron is a Toronto real estate lawyer. He can be reached by email at firstname.lastname@example.org, phone 416-364-9366 or fax 416-364-3818. Visit the column archives at http://aaron.ca/columns/toronto-star-index.htm for articles on this and other topics.