By Brian Madigan LL.B.

The Criminal Code of Canada contains some provisions which are both important and relevant to real estate transactions and trading in real estate.

Since it is not the first place people will generally look for the source of the law in what would otherwise be a civil matter involving a contract between two parties, it is necessary to review some of the provisions.

Quickly, to summarize there are definitions for fraudulent concealment (acts) and false pretences (words). There is also the matter of fraud, and some specific offences that relate to real estate transactions.

Let’s have a look at some provisions in the Criminal Code:

Fraudulent concealment

341. Every one who, for a fraudulent purpose, takes, obtains, removes or conceals anything is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years.

Note: these are acts.

False pretence

361. (1) A false pretence is a representation of a matter of fact either present or past, made by words or otherwise, that is known by the person who makes it to be false and that is made with a fraudulent intent to induce the person to whom it is made to act on it.

Note: these are “words” and other types of “representations”. They are basically false statements.

Exaggeration

(2) Exaggerated commendation or depreciation of the quality of anything is not a false pretence unless it is carried to such an extent that it amounts to a fraudulent misrepresentation of fact.

Note: this is a reasonable modification. Mere puffery is not a criminal offence.

Question of fact

(3) For the purposes of subsection (2), it is a question of fact whether commendation or depreciation amounts to a fraudulent misrepresentation of fact.

Note: The trier of fact, either the Judge or the Jury (as the case may be) will make this determination. The test is objective, not subjective. The accused’s own personal view is not relevant.

False pretence or false statement

362. (1) Every one commits an offence who

(a) by a false pretence, whether directly or through the medium of a contract obtained by a false pretence, obtains anything in respect of which the offence of theft may be committed or causes it to be delivered to another person;

(b) obtains credit by a false pretence or by fraud;

(c) knowingly makes or causes to be made, directly or indirectly, a false statement in writing with intent that it should be relied on, with respect to the financial condition or means or ability to pay of himself or herself or any person or organization that he or she is interested in or that he or she acts for, for the purpose of procuring, in any form whatever, whether for his or her benefit or the benefit of that person or organization,

(i) the delivery of personal property,
(ii) the payment of money,
(iii) the making of a loan,
(iv) the grant or extension of credit,
(v) the discount of an account receivable, or
(vi) the making, accepting, discounting or endorsing of a bill of exchange, cheque, draft or promissory note; or

(d) knowing that a false statement in writing has been made with respect to the financial condition or means or ability to pay of himself or herself or another person or organization that he or she is interested in or that he or she acts for, procures on the faith of that statement, whether for his or her benefit or for the benefit of that person or organization, anything mentioned in subparagraphs (c)(i) to (vi).

Note: For real estate transactions, there are some interesting points. The possible offence not only involves a prospective buyer but also the registrant. Here, a seller take back mortgage, the deposit, and the general creditworthiness of the buyer are all relevant.

are all material and are actionable. The risk here is assumed by both the principal and the agent (the registrant).

Punishment

Note: The punishment varies depending on the seriousness of the offence. For very serious matters involving property over $5,000, the offence is punishable by way of indictment and can lead to imprisonment for 10 years. For lesser offences under $5,000 the punishment can be for a period of up to 2 years and the Crown may proceed by summary conviction.. In addition, there is usually an Order for restitution.

Fraud

380. (1) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service,

(a) is guilty of an indictable offence….

Here the punishment is similar to the earlier false pretences offence except that if fraud were proved the maximum term of imprisonment is extended to 14 years.

Note: this is the basic definition of fraud and it applies to real estate transactions. There is no exception by reason of the fact that real estate is a regulated industry and its transactions governed by other legislation.

Affecting public market

(2) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, with intent to defraud, affects the public market price of stocks, shares, merchandise or anything that is offered for sale to the public is guilty of an indictable offence and liable to imprisonment for a term not exceeding fourteen years.

Note: Let’s presume that some new houses are being built over a former dumpsite. The seller and the agent (registrant) need to be very careful when it comes to marketing to make sure that there is no deceit or false statement.

The information must be accurate and correct in all material respects. A partial truth can in fact be a lie, if the intention is to mislead.

Other Criminal Code Offences

There are also some other specific provisions contained in the Criminal Code which deal with the matter of disclosure in real estate transactions either directly or indirectly including:

Secret commissions (s. 426)

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

I thought that I should say something. However, this year I have become somewhat disillusioned.

All the very best cards by far are from muffler shops and commercial establishments that are seeking my business. I know that I’m on their mailing list because of their very kind and personal greetings. In fact, I must be on a first name basis because seven or eight people who work there, will all sign with their first names and extend to me the compliments of the season.

The only thing that sort of put me off a bit this season, was the Christmas insult. Now, actually I have been receiving them for some several years. You know how they go …”this year we will not be sending out our traditional Christmas cards…..instead… we will be making a donation to a local charity……etc…etc….”.

Well, quite frankly, I don’t care! Either send me a card, or don’t send me a card, but don’t write to me and tell me that you’ve decided not to send me a card.

And, what’s more, how cheap are you that you need my card money to use for charity? That charity can’t be very high on your list. Also, neither am I, since I am obviously at the bottom of your list. Why bother to insult me? Just let it go, say nothing. I would be far more likely to do business with you, if I heard nothing from you.

So, for the last couple of years I have been sending out a curt reply “I’m not sending you a Christmas card either”. This year, I’m not even going to bother with that. But, it has occurred to me that the exchange of “Christmas Cards’ and ‘Greetings for the Season” (for the politically correct) has deteriorated into a commercial request for new business.

For the last several years, I have sent out what I believed to be an appropriate greeting. The people were on my e-mail contact list. Since I now believe that it is somewhat crass to commercialize the holiday season, I will simply wish everyone “the best of the season and joyous and prosperous 2009”, here.

I hope no one is offended if they don’t get a card or an e-mail greeting from me this year. And with the money I save on stamps…….. no, that is not my new found charitable budget.

In fact, I would greatly encourage everyone to give their time to a good cause, volunteer for a local community group that needs your help. It will be very rewarding.

So,

Merry Christmas, Happy New Year, and may you enjoy a healthy and prosperous 2010!

Brian

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

The case of Lyle and Burdess would just be like any other disclosure case, except for the summary and commentary of Judge Cozens on the law of disclosure and the proper use of the disclosure statement.

This matter came on for trial in the Small Claims Court of Yukon at Whitehorse in December 2008. The Defendants, Gary and Trudy Burdess, sold a residential rental property at 4 Firth Rd., Whitehorse, Yukon to the Plaintiffs, Kerry Lyle and Glenda Bowers.

Subsequent to the sale, the buyers discovered that there was a moisture problem in the walls and ceilings of the upstairs rental unit (the “Suite”). The moisture problem was caused by snow and ice buildup causing an ice dam buildup at a point where the peaked metal roof meets an adjoining exterior lower roof.

During the spring thaw, this ice dam melts and the resultant water enters into the roof cavity and subsequently drips into the insulated ceiling space, causing water and/or moisture damage to the walls and ceiling. The Plaintiffs claim $10,818.15, inclusive of GST, as the estimated cost of repairing the water damage and correcting the underlying problems that are the cause

The plaintiff buyer Kerry Lyle, and the defendant sellers’ sales representative, Mr. Dean Philpott are both registered sales representatives with the same real estate brokerage in Whitehorse. They both participated in the sale and received a portion of the commission arising from this transaction. Consequently, multiple respresentation issues arise. Neither party were represented by lawyers at trial, and as a result the trial Judge was obligated to conduct his own legal research into the subject of the laws related to disclosure in real estate transactions.

On June 20, 2007, the sellers completed a Property Disclosure Statement (“PDS”). In the PDS, they denied that they were aware of the property having any water or moisture problems.

By the end of the trial, it became apparent that there was little in dispute between the parties as to the cause of the water damage. It was also undisputed that the sellers had been aware on two prior occasions in 2006 and 2007 of a water and/or moisture problem in the suite. This was a case where the trial Judge concluded that there was no real dispute between the parties on the critical facts.

The Lyles’ offer to purchase the property was signed June 5, 2007 and the Burdess’ accepted this offer on June 28, 2007. The contract included the following clause:

“The Property Disclosure Statement dated June 20, 2007 is incorporated into and forms part of this Contract of Purchase and Sale.”

After receiving the PDS, the buyers had a home inspection completed by Kevin Woods. Mr. Woods did not enter the roof space as he felt he was unable to access it. The home inspection did not result in the buyers having any concerns about the physical state of the property. The buyers signed a Home Inspection Clause Removal document on July 6, 2007, and took possession of the property on August 1, 2007.

Mr. Lyle was first alerted to the possibility of the moisture problem in the suite by a neighbour shortly after the purchase. He spoke to the previous tenant, Mr. Ospina, who confirmed that there had been a moisture issue.

Gary and Tracy Burdess purchased the property on January 16, 2005 as a rental property. There was nothing at that time that would have alerted them to the moisture problem, or any problems with the roof structure.

In February, 2006, the sellers observed a small amount of water staining in and around the light fixture in the master bedroom of the suite. On March 4, 2006, the sellers had their carpenter examine the suite and enter the attic. He did not advise the sellers of anything of concern, although he did mention there was some frost buildup. Based upon that information the sellers felt that the moisture problem resulted from condensation.

After Mr. Ospina moved out in May, 2007, the sellers repainted the suite. Mr. Burdess testified that even after the dehumidifier had been used in the property and the sellers had thought the problem was solved, there was some further moisture staining in the master bedroom near the light fixture. This stained area was painted over. The sellers never considered the possibility of there being a roof problem.

When the Defendants completed the PDS with Mr. Philpott, they hesitated at question “J”. They mentioned to Mr. Philpott that there had been a moisture problem in 2007, without providing any of the specific details of the problem. They told him that they believed it to be a result of condensation and that it had been fixed by the use of the dehumidifier. In response, Mr. Philpott asked them whether it was fixed and, when they said they believed so, he advised them to include the following:

“ADDITIONAL COMMENTS AND/OR EXPLANATIONS” section of the PDS:

Owners have never lived in the house. It was a rental property.

There are extensive sections of the reasons for Judgment that are quite important to consider:

“[44] Mr. Burdess testified that Mr. Philpott did not advise them to answer “No” to question “J”. Mr. Burdess also stated that he hadn’t really given any thought to the PDS, including its purpose and who it was intended for. Ms. Burdess testified that the Defendants were not provided any information with respect to the PDS, but were simply told to fill it out. The Defendants testified that they had never been informed by Mr. Philpott that completion of the PDS was optional and not mandatory.

Dean Philpott

[45] Mr. Philpott has been a real estate agent for approximately seven years and has been involved in the completion of approximately 200 PDSs.

He testified that it is a general practice of [his brokerage] to have a PDS completed on every sale and incorporated into the Contract of Purchase and Sale, with certain exceptions made in sales which include an “As is, where is” statement in the Contract of Purchase and Sale.

He does not inform sellers that the PDS is an optional document, because of the [brokerage’s] practice to obtain them in almost every sale of property.

[46] He confirmed that he had been advised by the Defendants of a condensation issue in 2007 that had been rectified, and that he had suggested they include the additional comment about the Defendants not having lived in the rental Property, because he knows that in certain cases the seller cannot necessarily know everything that happens.

He testified that he did not ask the Defendants any other questions about the condensation issue or ask them to expand further on it, because he was satisfied that the problem was fixed, based on what the Defendants said to him.

[47] The Defendants sent Mr. Philpott a letter on April 22, 2008 in which they requested he answer the following questions:

1. Could you please give us in writing, your recollection of our discussion regarding the conversation we had regarding line J. Are you aware of any moisture and/or water problems in the walls, Basement or crawl space? [sic] of the Property disclosure statement…..?

2. Could you please give us, in writing a brief history of your experience in real estate particularly related to disclosure statements?

[48] Mr. Philpott responded ….. as follows:

My recollection of line “j” is that you told me that there had been some condensation in the upper unit but that it had been remedied by the use of a dehumidifier and the use of the bathroom fan.

It has been my consistent habit to have the owner or owners who are making the declaration on the property disclosure statement, read it and answer the questions to the best of their knowledge by placing their initials in the appropriate box. Further, if the owner has not lived in the property I often tell them they can disclose this fact in section 3.

[49] Mr. Philpott testified that if he had not been satisfied that the problem identified by the Defendants was fixed he would have “taken it to the next level”, which I take from the whole of his evidence to mean he would have made further inquiries.

In cross-examination he stated that if he had known about the tenant’s complaints about water leaking and that it was still a problem, he would have advised the Defendants to disclose this on the PDS. It is his opinion that the Defendants appeared to be telling him the truth when they stated that the Moisture Problem had been fixed.

[50] He testified that his practice is not to advise sellers to disclose the existence of a prior problem on a PDS, if the problem has been fixed.

[51] It is his practice to only follow up on an answer on a PDS with the seller if there are questions from the purchaser. In this case he did not discuss the PDS with Mr. Lyle.

[52] sections omitted

Law: Disclosure obligation

[56] It is clear in law that a seller completing a PDS or similar document is required to disclose any latent defect in the property being sold in response to a question that addresses the latent defect.

A failure to disclose such a latent defect can result in either a finding of non-contractual fraudulent or negligent misrepresentation, or a breach of the contract for purchase and sale if the PDS has been incorporated into the contract.

[57] A failure to disclose a patent defect will not necessarily constitute a misrepresentation or breach of contract giving rise to liability, as such a defect should normally be visible to the buyer.

As such, the buyer would not necessarily have been misled by the disclosure statement. As the PDS forms part of the Contract in this case, I will not discuss the concepts of fraudulent or negligent misrepresentation in these reasons.

Breach of Contract

[58] sectioms omitted

Note: Kaufmann v. Gibson, case was cited with approval, as were the following comments by Justice Killeen in that decision.

[63] The SPIS was incorporated into the Agreement for Purchase and Sale as forming part of the agreement which, in Killeen J.’s words:

…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.

[64] section omitted

[65] Killeen J. rejected the “present-tense” or “current” interpretation with respect to the questions in the SPIS, finding that, in consideration of the spirit and general purpose of the SPIS, “…it is not unreasonable to infer that the questions should be given a plain, common-sense reading rather than a narrow or tortured one” ……

[66] In addition, he stated that once a seller signs a SPIS, the “doctrine of caveat emptor falls away as a defense mechanism and the vendor must speak truthfully and completely about the matters raised in the unambiguous questions at issue here”…..

Conclusion on Liability

[67] Here, at the time that they signed the PDS, the Defendants were aware of the existence of the Moisture Problem in the Suite in 2006 and 2007. The Moisture Problem was latent and should have been disclosed to the Plaintiffs by the Defendants.

I concur with Killeen J. that a “present tense” or “current” interpretation of the questions asked in the PDS should be rejected.

While the questions in the PDS are not as clearly worded as they could be, they are not ambiguous to the point where they would have of necessarily misled the Defendants.

[68] The primary purpose of the PDS is to disclose latent defects that would not be easily discoverable to a prospective purchaser in the time frame generally associated with completing a purchase and sale transaction.

A prospective purchaser should be able to rely on the questions and answers in the PDS to inform him or her about past, as well as present, issues. In the absence of wording that narrows the time frame to the present, such as “Are you aware of any present water and/or moisture problems….”, then a broad interpretation that is in accord with the purpose of the PDS should be given to the questions.

[69] It is important to remember that, if necessary, the seller has the ability to elaborate on the answers given in the Additional Comments section.

In this case, the Defendants only additional comment as to having never lived in the rental property was inadequate.

At most, this comment could have triggered the Plaintiffs to a possibility that the Defendants may not have been in the best situation to observe any issues or problems, as compared to someone who actually lived in the Property.

While such a comment may have value to a buyer in certain circumstances, in this case, given what the Defendants knew and what they wrote in the PDS, it fell far short of what is required.

[70] It would have been very simple for the Defendants to have answered questions “J” and “K” with “Yes”, or even with “No”, and, in either case, to provide in the Additional Comments section the details of the Moisture Problem in 2006 and 2007, the conclusions reached, and the steps taken to eliminate the problem and repair the damage.

Although I consider that a “No” answer would have been incorrect, the suggested additional comments would have nonetheless alerted the Plaintiffs to a water and/or moisture issue which they could have then looked into more carefully, had they chosen to do so.

The way these questions were answered, for all practical purposes, foreclosed such a further investigation by the Plaintiffs.

[71] The wording in the PDS that “The seller states that the information provided is true, based on the seller’s current actual knowledge as of the date on page 1” does not impact upon the Defendants’ liability.

It is what the Defendants were aware of on June 20, 2007 that mattered, and the Defendants knew on that date, at a minimum, of the prior existence of the Moisture Problem.

In any event, there is also some foundation in the evidence that the Defendants were or should have been aware on June 20, 2007 that there remained a present problem due to the reappearance of water and/or moisture staining in the master bedroom, after the dehumidifier had been used.

[72] In conclusion on the issue of liability, I find that the Defendants are liable to the Plaintiffs for breach of contract as a result of failing to disclose to the Plaintiffs in questions “J” and “K” of the PDS the existence of the Moisture Problem.

I do not consider that the answer to question “M” was incorrect or misleading.

The Defendants were not aware of any roof leakage or an unrepaired roof problem and their answer of “No” was correct to this question.

Damages

[73] Mr. Lyle testified that the Plaintiffs would not have paid current market value for the Property had they known of the Water Damage, the Moisture Problem and the underlying cause. For the breach of contract, therefore, the Plaintiffs shall be awarded damages that cover the costs associated with fixing the Water Damage and the underlying cause of the Moisture Problem, thus effectively putting the Plaintiffs in a position similar to what they would have been in at the time of the sale of the Property, had they purchased it at a price that was reduced in order to allow for the necessary repairs.

[74] A remediation plan has been put forward by the Plaintiffs based upon the recommendations and respective expertise of the contractors. I am satisfied upon the evidence that this plan is as reasonable and accurate as can be expected in the circumstances. The Plaintiffs are awarded $10,818.15, inclusive of GST. The Plaintiffs are also awarded post-judgment interest in accordance with the Judicature Act, R.S.Y. 2002, c. 128. In the circumstances, I decline to make an order for pre-judgment interest.

Other Issues:

Waiver of Home Inspection Condition

[75] Although the issue was not specifically argued by the Defendants, I concur with the comments of Killeen J. in Kaufmann regarding the effect of the waiver by the Plaintiffs of the home inspection condition. This waiver in no way means that:

…the purchasers waived their right to rely on the untrue answers in the SPIS form, as incorporated in the agreement. It is a matter of obvious fact that home inspections may not discover things that are not visible to the naked eye”.

[76] A home inspection should reveal any patent defects and, if disclosed to the buyer, allow for a more thorough investigation into any latent defect in order to determine the nature of the defect.

A home inspection is not intended to find latent defects.

In circumstances where there is no PDS prepared, a prudent purchaser would be expected to contract for a more thorough home inspection if the buyer wished to avoid future costly surprises. Where a PDS has been prepared, however, the buyer should be able to rely on the truthfulness and accuracy of the representations in the PDS in deciding the extent to which a contractor will be instructed to conduct a home inspection.

[77] sections omitted

Use of Property Disclosure Statement

[81] I agree with the following comments by Scott C.J.M. and Kroft J.A. concurring in Alevizos v. Nirula, 2003:

36. Based upon the experience of those provinces that have employed the PCS [Property Condition Statement], it seems to present a ripe ground for litigation. Doubtless this is due in no small measure to the problems inherent in an informal “fill in the blank” form which can have such serious legal consequences when problems subsequently develop in a real estate transaction.

The wisdom of maintaining is [sic] use a form fraught with such inherent difficulties, exacerbated by the conflicting statements within the form concerning its purpose and effect, should be addressed by lawyers and real estate agents alike.

47. This judgment should, in my view, be taken as a warning about the routine use of the PCS. The purchase and sale of a home is for many people the most significant business transaction they will ever enter into.

Representations as to the condition of the property are inevitably going to be requested and given.

I do not believe that these concerns are ever going to be safely dealt with by filling in the blanks on a short form carried in the real estate agent’s briefcase with his or her other supplies.

48. It is my concern that the use of the PCS is likely to increase the number of disputes in circumstances similar to those which existed here. That view causes me to emphasize the suggestion of Chief Justice Scott that the continued use of the PCS “should be addressed by lawyers and real estate agents alike.”

A more careful and traditional way of making important representations about the condition of property is surely better than incurring the risk of costly and uncertain litigation.

[82] The PDS is a legal minefield, given the consequences that can arise for both a seller and a buyer, and the apparent lack of actual legal advice accompanying their preparation and receipt. Killeen J. stated in Kaufmann the following:

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.

Role of the Real Estate Agent in the PDS

[83] As Ms. Burdess testified, the Defendants were not particularly experienced in selling and purchasing homes. She stated that she trusted Mr. Philpott to give her and her husband advice in the sale of their home, including the completion of the PDS. She testified that she did not feel that she was well represented in that regard.

[84] Mr. Philpott is not a defendant in this proceeding. As such, it cannot be said that I have before me all the evidence that would perhaps have been relevant had he been named as a Defendant.

Therefore, I am not required, nor am I able, to make findings with respect to any potential liability resulting from his actions in the sale of the Property. In the circumstances of this case, however, some observations about the general role of real estate agents, and Mr. Philpott’s role in particular, are worth making.

[85] When providing information and advice, a real estate agent has a duty to exercise care and skill. This is true whether speaking of the listing agent for the seller or the listing agent for the purchaser. In Neill v. Trenholme, Glennie J. referred to the decision of Lysyk J. in Sedgemore v. Block Brothers Realty Ltd…… where he stated:

In some circumstances, a real estate agent is entitled to rely on representations of fact made by the vendor…In Foster, Real Estate Agency Law (1984), the duty to exercise care and skill is described in the following terms:

It is now well established that real estate brokers who elect to provide information and advice to third parties with whom they have dealings must exercise reasonable care and skill in the performance of their undertaking in ensuring the completeness and accuracy of such information and advice….

A broker must at least check the completeness and accuracy, both of all information which it is usual or customary for brokers to verify, and of all other information as to the completeness and accuracy of which he is in doubt.

However, authority exists to support the contention that the obligation of, at least, a listing broker is somewhat broader in that he must ascertain and verify all pertinent facts concerning the property placed in his hands for disposal.

[86] In Professor Foster’s paper, referred to earlier, under the heading of Duty of Disclosure and Property Disclosure Statements (Chapter 6.3), he discussed the real estate agent’s role when acting for either the seller or the buyer when a Property Disclosure Statement is utilized.

[87] In Chapter 6.3.1 “PDSs and buyers’ brokers”, he noted that:
…a buyers’ brokers’ obligations to their clients are not discharged by delivering the statements to their clients. The case law suggests that they should advise their clients of:

• the continued relevance of the doctrine of caveat emptor;

• the limited utility of these statements as contractual documents;

• the limited utility of these documents as they attest only to sellers’ current knowledge about their properties and not necessarily about the actual state of the properties;

• the fact that there may be defects about which the sellers may be unaware;

• any apparently incorrect or questionable responses by sellers;

• the need for further inspection and inquiry by the buyer or appropriate experts;

• the need for brokers to personally verify certain information to ensure the statement’s accuracy when a reasonable broker would do so;

• the need for insertion of appropriate warranties if particular attributes of the property are of concern to the client.

[88] In Chapter 6.3.2 “PDSs and sellers’ brokers”, Professor Foster noted that seller’s brokers:

…who request their clients to complete PDSs, may do so for one or both of two purposes:

• to determine for themselves the condition of their client’s property and other relevant matters so that they are in a position to respond, if they choose, appropriately to inquiries by potential customers; and/or

• to provide the statements to potential customers or their brokers

[89] Professor Foster notes that Property Disclosure Statements are “…clearly drawn in a manner offering more protection to [seller] than to a purchaser…” and notes that the use of the Property Disclosure Statement:

…poses potential problems if only because the statements do not sufficiently clearly, if at all, advise clients:

• of the continued relevance of caveat emptor;

• that they are not legally obliged to disclose patent defects;

• that they are only legally obligated to disclose material latent defects;

• what constitutes material latent defects;

• of the importance of accuracy and completeness if they chose to complete the statement;

• that, even though the statements are not necessarily contractual documents, they nevertheless constitute representations and may be used by buyers as a basis for action for negligent misrepresentation;

• that completion of the statement does not relieve clients from their duty of disclosure to buyer-customers.

While a number of these issues have not yet been considered by a court, it is suggested that it is only a matter of time before they are. For in requiring sellers to complete PDSs without an awareness of the full implications of these statements, it is difficult to see how it can be said that brokers are acting in the best interests of their clients….for seller’s brokers to provide these statements to buyers, is to:

• ask sellers to volunteer information to buyers, much of which information sellers are not legally obliged to volunteer; and

• place buyers in an advantageous bargaining position being armed as they are with a list of all known defects, patent and latent.

[90] Professor Foster adds in Chapter 6.3.4 “PDSs – Some general issues” that “…the case law also suggests that brokers, whether representing sellers or buyers, must:

• if they play a role in the completion of the statements, exercise reasonable care and skill in ensuring their accuracy;

• be alert for changes in, or new, information and ensure that PDSs reflect current knowledge concerning the property;

• investigate certain responses to questions in the statement, if there is some evidence that would put a reasonable broker on notice that the response provided is not reasonable.

[91] I agree with the observations of Professor Foster.

While some of the warnings or cautions as to the limitations of the PDS are incorporated into the document in the present case, these warnings or cautions are minimal and by no means sufficiently comprehensive.

It appears from my review of the case law that similar property disclosure or information documents used in other jurisdictions may also incorporate some of these warnings or cautions, but certainly not all of them.

[92] I also note that Professor Foster’s comments are not exhaustive in their contemplation of what advice a real estate agent should perhaps provide his or her client.

For example, in the present case, the PDS was incorporated as a term of the Contract of Purchase and Sale, thus altering somewhat the potential legal consequences of the PDS as compared to a warranty or representation existing outside of the terms of the Contract for Purchase and Sale.

[93] What the duty of care is on a real estate agent will depend upon the factual circumstances of each case. In the Neill case, the seller/defendants had advised their real estate agent of a prior water problem that had been rectified.

The defendants’ real estate agent then provided this information to the real estate agent for the plaintiffs, who in turn advised the plaintiffs. The plaintiffs, at their request, received further confirmation from the defendants that the problem had been fixed.

The court found for the plaintiffs for negligent misrepresentation by the defendants of the nature and status of the water problems in the basement of the property. The court found that the defendants knew the water problems remained ongoing.

[94] The real estate agent for the defendants was brought into the action as a third party by the defendants, as were the plaintiff’s real estate agent and the real estate broker that employed them both.

The defendants claimed that they relied on the professional advice or acquiescence of both real estate agents in deciding to answer “No” to two questions on the Property Condition Disclosure Statement that dealt with “water” or “moisture” problems in the property.

The real estate agent for the defendants did not discuss with them the questions to be answered on the Property Condition Disclosure Statement.

[95] In finding that the defendants’ real estate agent did not breach his duty of care, the trial judge held that he had met his obligation to the defendants by telling them to “fill it [the Property Condition Disclosure Statement] out to the best of your knowledge” and to “be truthful because it is a legal document”.

The real estate agent for the plaintiffs had no reason to believe that the information provided to him by the defendants was incorrect.

The court also found that the defendants had not provided the real estate agent any information that ought to have alerted him to inquire further of the defendants as to the water problem. The action was dismissed as against the defendants’ real estate agent and the brokerage. The defendants discontinued their claim against the plaintiffs’ real estate agent at the conclusion of the trial.

[96] While the court found in Neill that a real estate agent has discharged his or her duty of care by simply telling a seller to fill out the Property Condition Disclosure Statement truthfully to the best of the sellers’ knowledge, this may not be sufficient in a different set of circumstances, or necessarily be found to be the case in different jurisdictions…..

[97] I am not suggesting that compliance with everything Professor Foster has listed as duties of a real estate agent for the buyer or the seller may necessarily be required in order for a real estate agent to discharge the duty of care required. This is not an issue I am required or able to decide in this case.

[98] That said, should the issue regarding a real estate agent’s duty of care arise in future, an argument could be advanced that the completion of a PDS by a seller, or receipt of one by a buyer, would require greater guidance from the real estate agent involved than simply telling the seller to complete the form truthfully to the best of the seller’s knowledge, or to accept it as a purchaser, without understanding the potential legal consequences attached to it. Whether such an argument succeeds is, of course, dependent upon the specific circumstances of a particular case.

[99] The required level of guidance from a real estate agent may be limited to explaining that:

1) there are significant legal consequences attached to a PDS,

2) the agent is not in a position to provide legal advice, and

3) the seller or buyer may first wish to discuss these consequences with a lawyer to fully appreciate them.

I am not finding this to be the required standard, as I am not in a position to do so in this case, but am rather suggesting that some consideration needs to be given to the issue by real estate agents and real estate companies.

[100] The completion of the PDS is not mandatory and the seller is thus consenting to complete one. Although the consequences that flow from the concept of consent in the civil arena differ from consent in the criminal arena, if consent gives rise to potential legal consequences, the consenting party should be as fully informed as possible.

Mr. Philpott’s actions

[101] In the present case, Mr. Philpott was provided very limited information by the Defendants as to the nature of the Moisture Problem.

He was told that the problem had been fixed and he specifically asked the Defendants if they were sure it was fixed. He received their assurances that it had been.

He stated that if he was not satisfied that the problem had been fixed he would have “taken it to the next level” which I consider on the whole of the evidence to mean he would have made further inquiry of the Defendants.

[102] Mr. Philpott did not tell the Defendants to answer “No” to questions Structural “J” and “K”, although it is logical on the evidence to infer that he did not dissuade them from doing so and may well have been perceived by the Defendants as indicating to them that a “No” answer would be appropriate.

He did, however, advise the Defendants to make a somewhat innocuous comment as to being only renters of the Property, when it would have been just as easy to suggest that the Defendants note that there had been a past water and/or moisture problem that was now fixed.

[103] I have found that it is incorrect to believe that past water and/or moisture problems now fixed do not need to be disclosed in a PDS. Mr. Philpott testified, however, that he did not believe that such past problems needed to be disclosed.

If Mr. Philpott had understood that the PDS required that past problems also be disclosed, he may perhaps have given the Defendants advice to disclose the Moisture Problem.

There is no evidence before me, however, that his erroneous belief was communicated to the Defendants or that it may have directly contributed to the Defendants answering questions “J” and “K” incorrectly.

[104] As stated earlier, Mr. Philpott is not a Defendant in these proceedings. On the limited evidence I do have, it cannot be said that Mr. Philpott acted in a way that differed from the usual practice in the Yukon in regard to the completion and the use of PDSs.

It may well be that Mr. Philpott acted in this case in a manner consistent with how other real estate agents in the Yukon handle the PDS in residential real estate transactions. As such it would be unfair for anyone to view my comments as putting his actions in a negative light.

Recommendations

[105] I would recommend that a comprehensive review be undertaken by real estate agencies and lawyers with respect to the use of the PDS in the Yukon. Such a review should work towards ensuring that both sellers and buyers are made fully aware of the potential legal implications that may flow from the preparation and disclosure of the PDS.

For example, to the degree that there is any apparent or potential ambiguity in the questions in the PDS, some consideration could perhaps be given to simple wording changes that make it clear that “past” and “present” problems are to de disclosed in the PDS.

[106] I say this keeping in mind that real estate agents are not lawyers and should not be expected to provide legal advice.

The practical reality, however, is that many individuals in real estate transactions likely rely on their real estate agent for legal advice more than they should and real estate agents should be aware of this fact.

[107] While there may be a concern among real estate agents that a PDS with numerous warnings and cautions may have the effect of delaying or possibly even preventing the completion of a purchase and sale, thus potentially becoming a “deal-breaker”, any such concern is far outweighed by the potential legal issues that could arise in cases such as the one before me.”

COMMENT

Judge Cozens went to great length to review the law of disclosure and offer guidance to the real estate profession concerning the practical use of the Property Disclosure Statement. The document used in the Yukon is quite similar to the Seller Property Information Statement used in Ontario. What is particularly important is his approach to the legal obligations and the roles of various parties concerning the document. His counsel is wise, and any registrant should be cautioned to follow his “advice”.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

Recently, the City of Mississauga considered the allocation of cost and expense by homeowners who had previously incurred the personal expense of repairing the barriers.

As part of the infrastructure program the federal government made available the sum of $3.9 million to the City. As a result the City reallocated these funds to repair noise attenuation barriers. Up until then, the matter had been quite contentious.

However, this re-opened “old wounds”. What about those who accepted the City’s decision and paid themselves? Rather than continuing to “fight City Hall”, they went along with the City’s position.

The City is now considering allocating the sum of $125,000 among those particular homeowners. It certainly won’t go very far. Some paid as much as $6,000 to $8,000, and there are literally hundreds that would qualify.

These older barriers were constructed by builders often within inches of the City property line. Due to the fact that they were considered to be on private property, the City didn’t interfere. As a result, they were cheap construction and at 20 years of age outlived their useful lifetime. Many fell down and became eyesores. Properly, it should have been a municipal responsibility, as they are now. However, the outstanding issue today is: who is going to pay for repairs and/or replacement of the old ones?

Annually, the replacement costs for these noise attenuation barriers run in the range of upwards of $4 million. To be fair, the City should agree to accept responsibility and allocate the expense among all taxpayers.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

The Criminal Code of Canada contains some provisions which are both important and relevant to real estate transactions and trading in real estate.

Since it is not the first place people will generally look for the source of the law in what would otherwise be a civil matter involving a contract between two parties, it is necessary to review some of the provisions.

Quickly, to summarize there are definitions for fraudulent concealment (acts) and false pretences (words). There is also the matter of fraud, and some specific offences that relate to real estate transactions.

Let’s have a look at section 411 of the Criminal Code:

Used goods sold without disclosure

411. Every one commits an offence who sells, exposes or has in his possession for sale, or advertises for sale, goods that have been used, reconditioned or remade and that bear the trade-mark or the trade-name of another person, without making full disclosure that the goods have been reconditioned, rebuilt or remade for sale and that they are not then in the condition in which they were originally made or produced.

This is an interesting section of the Criminal Code. You might at first think that it does not apply to a real estate transaction. However, look again, there is no exception for real estate, so unless you wish to come up with a very clever argument at trial, you might just consider its application in real estate transactions.

The first requirement here is that it applies to “goods”. In conjunction with the sale of real property, there are two frequent additional components in every transaction:

1) fixtures, and

2) chattels.

It is arguable that fixtures are considered to be part of the real property and therefore do not fall within the definition of “goods” for the purposes of this section.

However, chattels are clearly “goods”. They are separate and disctinct from the real property and are considered “goods” for the purposes of the Code.

In large measure, these chattels are often listed specifically in the agreement of purchase and sale. And, that creates a problem.

If you refer to something as a chattel, will a Court conclude that it is a chattel because it was so defined in the agreement, or will it independently consider and apply the common law?

It has become customary for real estate practioners to list many items that are clearly chattels in the agreement of purchase and sale as “fixtures” when truly they are chattels; and vice versa.

If the item might be controversial, it is listed as a fixture “included”, or alternatively as a chattel “excluded”.

Take for example electric light fixtures, built-in dishwashers and furnaces. They are all fixtures and they are included in the deal. If however, for the sake of greater certainty the real estate practioner lists these items as “chattels that are included”, now we have another problem. The Court might accept them to be chattels and consider them as “goods” for the purposes of this section of the Criminal Code.

Then, there is a specific obligation of disclosure that arises.

In any event, all those items that are clearly chattels but are included in the transaction are indeed “goods”, and this provision in the Criminal Code applies.

Let’s consider the case of the used snowblower in the garage. It is included in the deal because the homeowner is moving to an apartment. The snowblower must bear the trade mark of a manufacturer. It might for example say: Viscount Snowblower Model 222, Serial No 123ABC.

If it’s brand new, never used and still in the box, no disclosure is necessary. However, once it is used, the seller has to make full disclosure that the goods have been:

1) reconditioned,

2) rebuilt or

3) remade

for sale and that they are not then in the condition in which they were originally made or produced.

So, there is a real risk if the snowblower is 10 years old and the motor was replaced. Now, there is a postive duty to disclose!

It is quite clear that this is not part of regular or customary real estate practice, but, perhaps it should be. The careful real estate practioner who ensures that his sellers are not exposed to risk in this regard will be greatly appreciated.

Punishment

(b) an offence punishable on summary conviction.

Forfeiture

(2) Anything by means of or in relation to which a person commits an offence under section …… 411 is, unless the court otherwise orders, forfeited on the conviction of that person for that offence.

A criminal offence, up to two years in prison and the loss of the snowblower are risks that the ordinary seller of real estate would not like to confront.

You might also consider the application and use of this slight transgression in another context. The buyer sues for some deficiencies. Those other matters are significant and measurable in terms of damages, however he decides to add the snowblower matter to the lawsuit. This is a specific procedural tactic which moves the focus into the area of criminal non disclosure, misrepresentation and concealment on the part of the seller. This is not good on either an examination for discovery or at trial. This could be far worse than the loss of the snowblower.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

ADDITIONAL COMMENTS __________________________

This is the seller’s opportunity to add anything else that may be relevant. Although it appears immediately below questions 1 to 18, it is also on the final page of the document. It may be interpreted to include all matters of every kind related to the property. Certainly, there are other issues that were not addressed, so this would be the opportunity to disclose them.

Schedules(s) attached hereto and forming part of this Statement include:
_______________________________________

There would appear to be an advantage to attach some documents here. If the seller had a warranty, a statement or an invoice, this might be the time to attach it. Now, at least, the buyer has that additional information which might qualify the answers somewhat.

The Sellers state that the above information is true, based on their current actual knowledge as of the date below.

That first comment is rather clear and unequivocal. The statement IS TRUE! There is no qualification here, no fudging in the expression of the sentiment. It is not believed to be true. It is not “felt” to be true. It is not “based on my reasonable belief and expectation to be true”. There are no qualifiers here. What the seller is in effect saying is this:

OK, that was a short-lived qualifier. If things change, then the sellers MUST report the change. What would be proof of knowledge? You might think that it would need to be an admission, but that is not really the case. If the Court concludes that reasonably the sellers either knew or “ought to have known” then that will be sufficient.

Sellers are responsible for the accuracy of all answers.

Another very clear and unequivocal statement. This is not a belief or a hunch or a feeling or a best guess or a statement “all things being equal”. This is an ACCURATE statement.

Responsibility is imposed upon the sellers, not anyone else.

Sellers further agree to indemnify and hold the Brokerage /Broker /Salesperson harmless from any liability incurred as a result of any buyer relying on this information.

Now, that would seem to be peculiar! If the seller is the one who is responsible for the truthfulness and the accuracy of the statement, why would the registrants (the brokerage, the broker and the salesperson) care? Why would they incur any liability?

So, why the need for the indemnity? Because the registrant was likely negligent in explaining the document to the sellers! Courts are reluctant to enforce an indemnity provision in the case of negligence.

The Sellers hereby authorize the Brokerage to post a copy of this Seller Property Information Statement into the database(s) of the appropriate MLS® system and that a copy of this Seller Property Information Statement be delivered by their agent or representative to prospective buyers or their agents or representatives.

Once it is posted as available, you can bet that another registrant will ask for a copy. In fact, if it is on MLS, then any buyer’s representative must ask for a copy under the Real Estate and Business Brokers Act 2002.

It should be noted however that the seller does have the opportunity to complete the SPIS, and direct the registrant not to disclose it. See Ontario Regulation 580. Disclosure is discretionary, yet this document clearly authorizes the disclosure.

The Sellers hereby acknowledge receipt of a true copy of this statement.

This way, the sellers cannot later deny that they signed it.

DATE ____________________

Signature of Seller ________________________

I acknowledge that the information provided herein is not warranted and hereby acknowledge receipt of a copy of the above information including any applicable Schedule(s).

This is a spot for the buyer to sign. As well there is provision for the buyer to initial each page. So, the buyer has the document in hand. Except for a few qualifiers here and there, that entire document WAS warranted. So, what difference does it make if the buyer says it’s not? NOTHING, absolutely nothing! They weren’t making any statements. The buyer can still sue as evidenced by the many lawsuits and Court decisions involving the SPIS>

From a contractual perspective this provision is helpful. However, in the case of a false, misleading or negligent misrepresentation then this type of statement will not exclude liability. Such an action would be framed in tort.

DATE ____________________

Signature of Buyer or Authorized Representative ________________________

The authorized representative here is presumably the registrant acting for the buyer, but it could be an Estate Trustee acting for an estate, or an Attorney acting pursuant to a Power of Attorney, a Trustee acting on behalf of a Trust, or such other representative authorized by law.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

1. Are you aware of any structural problems?

The question here seems to relate to “awareness”. But, be careful the Form is really looking for the seller to state for certain that there are no structural problems.

This is not a simple innocuous question.

2 (a) Have you made any renovations, additions or improvements to the property?

Fair enough, finally an easy question, either the seller made renovations or he didn’t. I would interpret this question to include any contractors that he may have hired. The extended definition should include anything that was undertaken by a third party on behalf of the seller.

2 (b) Was a building permit obtained?

If the seller did the work himself, he would know whether or not he applied for and obtained a permit, but what about contractors?

So, even if a contractor told the seller about the need for a building permit, in some cases they might never have obtained one. So, unless there is a copy of the permit in a file, the seller should be careful about his response.

2. (c) Has the final building inspection been approved or has a final occupancy permit been obtained?

If the seller has something in his file then it should be produced, otherwise he would have to contact the municipality. Often, an owner will be somewhat compliant with the no building permit approach because no one comes out from the municipality to inspect, no one comes out to assess the value and the taxes stay the same.

The failure to obtain a permit is coming back to haunt the seller in this particular question. It would appear suspicious if this simple question were overlooked. So, it might actually be better not to answer any questions at all, than get stuck on a few difficult questions.

3. To the best of your knowledge have the building(s) ever contained ureaformaldehyde insulation?

This is actually the first time the seller is being asked a reasonable question. The question is qualified by the expression “to the best of your knowledge”. That qualification should have applied throughout to all questions, not just this one.

Nevertheless, this is one of the more important issues of disclosure. Not only does it appear in the FORM it is specifically included in the standard form real estate agreement of purchase and sale.

4. Is there vermiculite insulation on the property?

The seller probably would not know one way or the other, unless he actually had it installed himself.

Here is a recent note published by Health Canada:

Oddly, it does not ask whether it’s in the building, rather it simply asks if it’s on the property. So, if seller bought it, heard that it was bad and stored it in the garage, or in a shed then there is still have a problem.

If yes, has it been tested for asbestos? ________________

Unless the seller arranged for the testing, he probably doesn’t know if it was tested. Interesting question though. It asks whether the vermiculite was tested for asbestos. It does not ask for the results of that test.

5 (a) Are you aware of any deficiencies or non-compliance with the Ontario Fire Code?

The seller should be aware of the fact that the Fire Code contains essentially three separate items:

For example, assume the seller is operating a rooming house. There are increased requirements, and he may have received a deficiency notice. However, the buyer proposes to use the building as a single family home. These increased requirements will not apply, and no rectification may be necessary. In this case, the proposed use is more important than the current use.

5 (b) Is the property equipped with operational smoke detectors?

This is a fact, the seller either has them or not. However, unless he really tested them under smoke conditions, how can he state that they are “operational”. He might be able to say, the light is on, the battery was replaced today, and the buzzer goes off. But, is it truly “operational’, that’s a much different question. Why not let the buyer’s home inspector comment about this?

5. (c) Is the property equipped with operational carbon monoxide detectors?

This is similar to the smoke detectors, they are either present or not. However, unless the seller really tested them under carbon monoxide conditions, how can he state that they are “operational”. He might be able to say, the light is on, the battery was replaced today, and the buzzer goes off. But, is it truly “operational’? Where is he going to get the carbon monoxide to test it? Again, why not let the buyer’s home inspector comment about this?

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

Here is the “ORES REAL ESTATE INDEX” which tracks the average resale prices of single family homes and condominiums in the Greater Toronto Area (GTA). It also tracks certain benchmark comparisons such as the price of oil and gold, as well as the Consumer Price Index.

In addition, the stock market indices for Toronto, and the three largest US markets are also compared.

For ease of comparison, everything we look at is worth 100 points on the Index as of 1 January 2005. That time period compares favourably with the four year average used as a standard benchmark comparison in the mutual fund industry. Actually, it runs for 59 months or four years and eleven months.

As of 30 November 2009, [the last two months] and (the highs):

Real Estate

129.50…..[131.08/125.91] (131.08) GTA single family homes (average prices)
125.03…..[126.68/126.21] (126.68) All condos in GTA (average prices)
123.40…..[132.27/131.70] (132.27) Downtown Toronto Central Condos
122.12…..[120.85/120.36] (120.85) East condos
121.57…..[120.72/119.17] (130.60) North condos
134.64…..[129.69/129.17] (134.64) West condos

Other market comparisons

274.87…..[243.13/232.79] (274.87) gold (price per ounce)
175.59…..[175.25/160.28] (320.88) oil (price per barrel)
129.50…..[131.08/125.91] (131.08) ORES Index single family homes
124.37…..[118.54/123.80] (158.90) TSX index
108.83…..[108.92/108.92] (109.31) CPI index
103.99…..[99.16/102.91] (130.99) NASDAQ index
98.62…..[92.59/90.65] (132.47) Dow Jones index
92.75…..[87.72/89.49] (131.16) S&P Index

Using the Index

Just a quick note on reading the information. Have a look at the ORES Index for Real Estate (single family homes). As of the end of November, the index stood at 129.50. That’s a 29.50% increase in 59 months. That means the increase is 0.5% monthly, or it could also be expressed as 6.0% annually. The performance here is shown without annual compounding for the sake of simplicity.

The same index was 131.08 at the end of October and 125.91 at the end of September. The next number, in square brackets is the all-time high since 1 January 2005. That number is 131.08, which was the October figure and is in fact the all time high.

The other statistics are reported in a similar fashion for the ease of comparison.

Observations (on the Index)

As we use index, there are several notable comments:

• Commodity prices are just commodity prices

• There is no other “extra return” for commodities

• The same is true for the CPI

• The CPI is a benchmark to see whether you are keeping pace with inflation, that number is 108.83 (It is actually down from 108.92 in the previous month)

• For a realistic performance goal, you should aim for CPI plus 3.5% annually

• Stocks provide dividends in cash or extra stock. This return is additional to that shown in the stock market indices

• The stock market Indexes only measure the survivors. So, this year both GM and Chrysler would have been dropped due to the bankruptcies

• If you held GM and Chrysler, you lost everything, but two new companies moved in to replace them in the Indexes

• Real estate offers a return in terms of occupancy. You can rent out the property and receive income, or occupy the property and enjoy it yourself

• Actually, I should have mentioned that if you held gold bullion, you could sit in a room, count it, and enjoy that experience too. I’m not quite sure how to measure that. You’ll have to ask King Midas or Goldfinger!

Comparative Observations Using the New Index

• Gold was the best performer, and there was a significant increase this month

• Oil was the most volatile, (yes it dropped in half over our measurement period)

• Real estate was the most stable, with single family homes generally outperforming condos

• Downtown condos lost some ground this month. They are substantially off their earlier highs achieved just before the commencement of this Index

• Our own stock market posted reasonable gains, and is close to single family homes

• Two of the three US stock market indicators show negative numbers, with the NASDAQ just returning to positive territory

Conclusion

For steady, predictable, measured gains pick real estate. It’s a solid performer with lower risk (less volatility) and generally moving in a positive direction.

And remember, when it comes to real estate, it’s never “wiped out” completely, like GM or Chrysler stock. So, unless you’re sitting on the edge of a tsunami, you’ll still own something when the storm is over.

For a benchmark of success, there’s 1,000 years of history to point to a rate of return in real estate being about the equivalent of 5% per annum, simple interest (non-compounded). That means that real estate doubles in value every 20 years. There are a lot of companies (now bankrupt) that would have been happy with that return.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

The Ontario Real Estate Association (OREA) has recently commented upon the obligation to disclose the relationship whether it be client or customer with a prospect.

Here’s an excerpt:

Disclose, disclose, disclose

“Section 10 of the Code is clear on the requirement to provide the buyer or seller with certain information regarding their potential relationship. It requires all REALTORS®, including Commercial REALTORS®, to disclose in writing the nature of the services you are providing, and encourages you to make that disclosure as early as possible in the relationship. It also encourages you to get acknowledgement, in writing, of that disclosure.

In a commercial scenario, consider an individual who has contacted you to help him or her find office space to lease, or for that matter, a commercial or investment property for purchase. Under the provisions of Section 10 it is mandatory to ensure that the individual understand the ramifications of entering into a business relationship with you. In order to accommodate the requirements as set out in the Code it is necessary to develop a system whereby you are disclosing all the different relationships possible.

It’s also important to understand that the conduct of a salesperson or broker is sufficient to create an agency relationship. The definition of agency recognizes that fact. The consumer brochures entitled “Working with a REALTOR®” and “Working with a Commercial REALTOR®” identify the various arrangements possible. The last page of the brochure allows for written acknowledgement of the disclosure.

Unlike a residential real estate transaction where you are usually dealing with a buyer and a seller, a commercial transaction may include a buyer, a seller, a landlord and/or a tenant. It’s important to set out the procedure for working with a client under the requirements of the REBBA Code of Ethics, and the laws of agency while still maintaining a practical approach.

The process begins with a meeting and discussion with a prospective seller, buyer, landlord or tenant. As soon as possible, it is necessary to establish the relationship in writing. If your prospect is a seller then you require a representation agreement (e.g. listing). If the prospect is a buyer or tenant who wishes to be a client, a representation agreement is also required. If you are representing the buyer and you do not want to enter into a representation agreement with the seller, (i.e. the seller is to be a customer) then a Seller Customer Service Agreement would be the way to go. Finally, if the prospective buyer or tenant wishes to be a customer, then a Buyer Customer Service Agreement is required.”

COMMENT

You will notice that the commentary published by OREA was in large measure directed to commercial real estate agents. That’s because they are the most likely to overlook the proper documentation.

I’m not quite sure what OREA means when it refers to “disclosing all the different relationships possible” and “identify the various arrangements possible”.

There are two categories that must be identified:

1) clients, to whom fiduciary legal obligations are owed by reason of agency, and

2) customers, to whom other, lesser obligations are owed, but without fiduciary legal obligations since there is no agency relationship.

If you are offering both of these categories as options for the prospect, then the prospect should select one of them. If you are only offering customer status, you should draw to the attention of the prospect that another agent might offer client status.

The “Working with a Realtor” forms for residential and commercial purposes offer an inadequate explanation in my view of the agency and non-agency options. While the documents might at least serve as some evidence that the matter was discussed with the prospect, it falls short of the “informed consent” necessary to convince a Court that you provided an adequate explanation in all of the circumstances.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com