A recent leaky basement court case from the Ontario Superior Court in Thunder Bay is the latest in what might be called a flood of litigation resulting from the use of the Seller Property Information Statement (SPIS) by Ontario real estate agents. Rhonda Usenik is a young public health nurse who wanted to buy a low maintenance house in Thunder Bay, back in May 2004. When she found one she liked, she read the SPIS form that the vendors had prepared at the request of their real estate agent. In answer to the question, "Is the property subject to flooding," the sellers, Michael and Donna Sidorowicz, answered "no." They also answered no to the question, "Are you aware of any moisture and/or water problems?"Their answers to those questions resulted in almost three years of costly litigation when Usenik sued them for deceit or, alternatively, negligent misrepresentation.Pre-sale inspections of the house by the purchaser, her own agent, her boyfriend and her home inspector, failed to disclose any water problems. But shortly after she took possession, Usenik became aware of water leaking into the basement. The drywall began to blister, and mould was discovered growing behind the baseboard. At trial, the evidence revealed that the vendors told their real estate agent that there had been some water in the basement a number of years previously, but that they had fixed the problem. They said that the agent advised them that since the problem had been fixed, there was no need to mention it. It turns out that this was the wrong answer. Usenik obtained quotes totalling $47,040 for repairs and sued for these costs, as well as other damages for loss of rental income from the basement tenant, and loss in value of the house due to the leaky basement. The lawsuit was not based on a breach of the agreement of purchase and sale. Instead, it was framed as a case of damages resulting from the sellers' misrepresentation or deceit. The trial took place before Justice John Wright in Thunder Bay last year, and the judgment was released in February 2008. After hearing evidence for six days, the judge decided that either or both of the disputed SPIS statements were false. The vendors and, apparently, their agent, interpreted the SPIS question to mean "Is the property NOW subject to flooding?" But the truth of the matter, the judge reasoned, was the while it may not "now" be subject to flooding, it was subject to flooding ? in other words, "it was liable or exposed or prone to flooding."Wright also held that the statements were made negligently, that the purchaser relied on the misrepresentation, and that but for the misrepresentation, the purchaser would not have bought the house. Damages of $33,874.33, plus GST on part of that amount, were assessed against the vendors. Included in the award was the sum of $2,000 for aggravation. In addition, the buyers were awarded about $20,000 in court costs against the sellers.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. The sellers' agent in the case was added to the litigation as a third party defendant, and did not escape liability. Just before trial a settlement was reached in the third party action which saw the agent making a contribution to the sellers' damages. This case may well be the beginning of a - pardon the expression - flood of actions against agents across Ontario who will be sued, or disciplined professionally, for instructing their clients to sign this very dangerous form.
Bob Aaron is a Toronto real estate lawyer. He can be reached by email at email@example.com, 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.