Disclosure Statement ~ Checklist for Sellers’ Agents

Disclosure Statement Checklist

By Brian Madigan LL.B.

The following document is a Disclosure Statement Checklist. It is to be used following the steps as outlined in “Guidance to the Seller’s Agent Concerning Completion of the Disclosure Statement”.

The document can be amended as required. The items mentioned are some of the specifics that a seller’s agent may be called upon to offer in testimony should the matter ever proceed to Court.

In some cases, the answer is a simple “yes” or “no” and in other cases, a full explanation may be required.

The checklist also deals with the handling of the document after it is signed. If it is given out to more than one prospective buyer, that should be noted in the file

Disclosure Statement Checklist

1) Explanation of the law of disclosure

Latent defects
Patent defects
Material facts
Conflict

2) Review of the SPIS document

completed in full
yes
no

any concerns

3) Caution and recommend Legal Advice

Completed
Name of lawyer

4) Decision concerning completion

Informed Consent
Yes
No

Proceed with SPIS?
Yes
No

lawyer wants to see

• the document in blank
• completed document prior to its release
• seller to complete the document
• copy of the completed document

5) Determination of the Appropriate Use of the SPIS

Complete SPIS
Yes
No

Deliver Copy to Buyer
Yes
No

Use SPIS as checklist
Yes
No

6) Completion of the SPIS

Seller’s understanding of SPIS
Full
Sufficient

Seller cautioned about answers generally
Yes
No

7) Full Consideration of Each Question

Outstanding Issues
Yes
No

1
2
3
4
5

8) Document, if completed, requires updating

Seller will advise
Yes
No

Who to advise lawyer
Seller
Agent

9) Investigation of Secondary Sources

Verification Required
Yes
No

Particulars

10) Notation on Listing concerning Availability of SPIS

Copy in file
Copy posted
Copy to lawyer
Seller Authorization

11) Delivery of SPIS to Potential Buyers

Buyer Prospect #1
Delivered to Agent
Name
Signed copy obtained
Yes
No

Buyer Prospect #2
Delivered to Agent
Name
Signed copy obtained
Yes
No

Buyer Prospect #3
Delivered to Agent
Name
Signed copy obtained
Yes
No

12) Obligation to Provide Further Disclosure

Seller Aware
Yes
No

Subsequent Facts
1
2
3
4
5

Disclosed
Time/date evidence
1
2
3
4
5

NOTES:

The completion of the checklist and the making of careful notes will assist in any subsequent litigation

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

Seller Conceals Truth in Disclosure Statement

Seller Conceals Truth and is found Liable for Faulty Disclosure Statement

By Brian Madigan LL.B.

The case of Cutts vs. Okipnik is another Disclosure case. The action was tried in the Court of Queen’s Bench of Manitoba.

The purchasers claimed that the vendor fraudulently or negligentyly misrepresented the condition of the property at the time of sale.

The buyers testified that this was the first house they had ever purchased and that it was very important that there be no cracks or leaking in the foundation. They both said that they had rejected other houses that had these identifiable problems. Mrs Cutts testified that, after seeing a property condition statement that referred to leakage, they asked their real estate agent to make further inquiries and were satisfied with the answers provided.

Not surprisingly, their agent and Okipnik’s agent had no independent recollection of inquiries being made. However, both Todd and Colleen insisted that the property condition statement be provided as part of the offer to purchase.

Disclosure Statement

Okipnik provided the Seller’s Property Condition Statement as follows:

1. (H.) To your knowledge has there ever been any flooding or leakage affecting any portion of the property, during the period of your ownership of the property, (into the house or garage or into low-lying areas of the yards or other part of the property) and from any cause or source (rainwater, snow melt, sewer backup or other cause or source)?

The answer checked off was “yes, leakage was fixed via drainage ditch. Works well.”

5. (A.) Are you aware of any cracking, shifting or movement of the structure, that is not readily visible?

The answer checked off was “no”.

5. (C.) To your knowledge, during your ownership of the property, has there ever been any damage to the buildings due to wind, fire, water, moisture, insects or rodents?

Answer “no”.

The Facts

The deal was closed and the buyers moved in early January, 2004 and as you might imagine immediately became aware of problems.

Numerous photos were filed that show rust and mildew in the northeast corner and rust on the east wall, mildew on the carpet and wall in the laundry room, water leakage with water coming in from multiple points along the north end east walls, water leakage with water coming out of the furnace room and in from the north wall, and leakage along the north wall in the furnace area.
Clearly, there was a moisture problem.

Judge’s Observations on Seller’s Testimony

I found Okipnik lacking in credibility. A representative sampling follows:

1. Okipnik testified on direct that he was not even certain if the writing on the P.C.S. was his and that he did not recall filling it out. He tried to explain this as due to a heart attack and mini-stroke that he suffered shortly before the sale of the house. He was cross-examined about testimony given at his examination for discovery that he believed his agent had filled out the P.C.S. His final answer was that he just signed it to get it over with because he was too anxious for the sale and never bothered to read it.

2. He testified that contrary to what the P.C.S. contained he had in fact patched the northwest wall of the basement in the early 1980’s to seal it and prevent leaks. This patch was completely covered by insulation and drywall at the time of sale. His only explanation was that he had not remembered that patch when he answered the P.C.S.

3. He denied at trial that there were any problems with water or moisture after the basement was furnished. However, at his examination for discovery he had testified that there was water on the floor in the laundry room on a few occasions when there was heavy rain or melting, and further that he had never found a source for that water. When asked to explain the answers from the examination he indicated that he did not recall those answers and was probably wrong then. He then added at trial that any water in the laundry room was from his washing machine. He had just remembered that the night before he testified and he further confirmed that his memory was better in 2006 than it was in 2004.

4. Okipnik testified that the state of the floor in the basement was very good, and then said it had had cracks earlier. He had torn the floor out and redone it in the early 1980’s because of all the cracks. He was confronted by his testimony on discovery that the floor was redone around 1987, shortly before he installed the drywall. Okipnik replied that those dates were absolutely wrong.

5. Holes were observed in the floor in the southwest corner. Okipnik testified that he drilled those holes in the floors because he was using them to work with condensers. He denied that those holes were ever used to drain water from the laundry room one foot away, where there had been water in the past.

6. There is discoloration on many of the walls with patches of what looks like tar. Okipnik tried to suggest that he might have used tar to glue the insulation to the concrete walls.

7. Photos show water channeled through washed out concrete in the laundry room. Okipnik could not explain what that was, and purported not to recognize it.

8. Okipnik was absolutely inconsistent on his dates. He testified that the walls were finished the year after the floor was done. The markings on the drywall confirm that it was manufactured in 1988, so if his testimony is correct then the floor would have been done around 1987, which he absolutely denied. He then said that he was married in 1986 and the floor was finished before that time. He then said he realized that it had to be the summer before he was married or in 1985 at the latest. There was not the slightest consistency in any of his testimony on when work was done.

9. The P.C.S. suggested in answer to question 1.(H.) that leakage was fixed via the drainage ditch that he dug in his backyard. He denied at trial that there had ever been any leakage into the house. Again, at his examination for discovery he gave contrary testimony, as follows:

Q. 35 And what were the signs that you noticed that there was leakage?

A. There was water on the floor.

Q. 37 And where was the source of the water?

A. There was a crack in the foundation.

His response was that he did not recall those answers, but must have given them. He then tried to explain that away as a situation where he probably said water but meant water stains.

10. In his statement of defence at paragraph 8, Okipnik claimed that the walls ere drywalled in 1987. This could not be correct since the drywall was manufactured in 1988. He further claimed in his statement of defence that “at that time” a small crack in the north wall was filled. He testified that that was not correct and commented that he had no idea why he made that statement.

The Law

Is Okipnik liable to the Cuttses?

The leading case in Manitoba in this area is Alevizos v. Nirula [2003] MBCA No. 148.In that case the issue was whether the trial judge was correct in finding that there was a fraudulent misrepresentation when a false and misleading P.C.S. was provided to the purchasers.

In upholding the decision at trial, Scott, C.J.M. for a unanimous court stated: “It is clear that silence and half-truths can amount to a fraudulent misrepresentation.” And further: “In addition to silence and half-truths that mislead or imply something other than the truth, active concealment of a defect that would otherwise be patent is treated as fraudulent.”

Judgment

The trial Judge awarded Judgment based on the following damages

1.Repairs to foundation…..$15,860.45
2.Repairs to basement…….$23,500.00
GST + PST…………………… $3,290.00
Total ………………………….. $42,650.45

In addition, interest was added to the Judgment.

Comment

As you probably noticed the Judge went on at length about the seller’s lack of credibility:

The seller:

• Was forgetful
• Uncertain in his responses
• Failed to remember dates and times correctly
• Inconsistent in his story from the discovery to trial
• Completely failed to recall prior testimony given under oath
• Admitted his inconsistent testimony
• Blamed his poor memory on a heart attack
• Admitted that the Disclosure statement was in error
• Made up foolhardy explanations
• Refused to admit obvious facts
• Offered foolish explanations of prior testimony
• Unable to account for his prioer testimony

In this case, the trial Judge did not have much of a problem. The seller was not a credible witness at all.

It is noteworthy that the seller’s agent was not called upon to assist with the explanations. It is also interesting that the agent did not counsel the seller either to tell the truth or not sign the Disclosure statement at all.

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

Insurance Backs Up Disclosure Statements

By Brian Madigan LL.B.

The Miersma and Pembridge case was an application brought in October 2005 before the Superior Court of Justice of Ontario to determine whether a policy of insurance covered a false statement under a Seller Property Information Statement (SPIS) pursuant to an agreement of purchase and sale.

Mr. and Mrs. Pinkerton bought certain property in Picton, Ontario from Mr. and Mrs. Miersma. Pursuant to that agreement, there was a SPIS which included representations alleged to be false concerning a septic system and an underground storage tank.

The purchasers sued the vendors for false representations in the SPIS, both in contract and tort. Upon receipt of the claim, the vendors reported the matter to their insurer, Pembridge Insurance Company. The insurer took the position that the insurance policy did not cover this claim, since it was a claim in contract.

The purpose of this application was to determine whether the insurer had a “duty to defend” under the insurance policy. The actual merits of the lawsuit are not in question, just the issue of coverage under the policy.

The Court observed:

The duty of a liability insurer to defend will be triggered if, on a reasonable reading of the pleadings, they allege facts, which, if true, would require the insurer to indemnify the insured for the claim.

The mere possibility that a claim falling within the policy may succeed will suffice.

In its decision in BG Checo International Ltd. v. British Columbia Hydro and Power Authority, 1993 CanLII 145 (S.C.C.), [1993] 1 S.C.R. 12, the Supreme Court of Canada stated that where a given wrong prima facie supports an action in contract and in tort, the party may sue in either or both, subject to any limit the parties themselves have placed on that right by their contract.

The statement of claim:

The particulars of the negligence pleaded against the defendants are as follows:

(a) they represented that they did not know of any underground fuel oil storage tank when they had themselves disconnected the tank some years previously and left it in the ground;

(b) they represented that the septic system was constructed in conformity with applicable laws and was in good working order when they knew or ought to have known that there was an unlawful effluent line allowing leachate to move into the Bay of Quinte;

(c) they represented that all environmental laws and regulations had been complied with when they knew or ought to have known that they had not complied with the shutdown and removal requirements relating to the underground fuel oil storage tank in accordance with the provisions of the Technical Standards and Safety Act 2000;

(d) they represented to the best of their knowledge no hazardous condition or substance existed on the premises when they knew or ought to have known that their failure to properly decommission and remove the underground fuel oil storage tank left a hazardous condition or substance on the land.

Further, and in the alternative, the plaintiffs state that the defendants are liable for damages for breach of contract by reason of the breach of the express warranties contained in the Agreement of Purchase and Sale.

Decision of the Court

“In my view, the present case is similar to that in BG Checo, supra, where the court held that a pre-contractual representation which becomes a contractual term could found liability in negligent misrepresentation. This is the situation referred to in BG Checo where it was held that the duty in contract and the common law duty in tort are co-extensive.”

COMMENT:

This imposes an additional burden upon insurers if they are to provide insurance coverage for this type of claim. You might quickly see that general homeowners’ liability policies will soon begin to exclude coverage for this type of claim. You might be able to purchase it, but you will have to buy it and pay a premium related to its risk.

The case is important because it means that the vendor will have money to pay any judgment. Why? There’s insurance! Also, the proceedings will become somewhat more costly. Why? There’s insurance, and a professional litigant will incur greater expense. Further, a lawsuit like this is more likely. Why? There’s insurance! The first insurer pays the loss to the purchaser. It then determines whether it can sue anyone to recover. Now, it can sue the vendor for negligent statements under the SPIS. So, it initiates proceedings, and just hopes that it is not also the insurer for the vendors.

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

Seller Liable Due to Deceptive Cover-Up

Seller Cover-Up Not Enough to Avoid Liability

By Brian Madigan LL.B.

The Cole and Vankoughnett case involves representations and remedies available for improper completion of the Seller Property Information Statement (SPIS).

The purchasers brought an action in Small Claims Court for misrepresentation, and non-disclosure of patent defects and latent defects in respect to a semi-detached residence sold by the vendors in 2003. The specific items of concern were the sewer system, the roofs, and water penetration into the basement.

The plaintiffs are a young couple purchasing their first home and the defendant is an elderly widow. The parties entered into an agreement of purchase and sale in August 2003 and the transaction closed September 3, 2003.

The vendor had at one time owned both sides of the semi-detached residence and throughout her ownership of the property there were several issues concerning the sewer system and the underground drainage.

The court found a municipal system with a very low capacity constitutes a defect.

The severe rationing of use as described by the plaintiffs (restricted showers and restricted laundry) amounts to a serious adverse effect on the habitability of the residence.

The court also found the defendant was aware of the defect or would have been aware if she had confronted the question in the context of normal demand by a busy family of 3 rather than a very low demand by two elderly women sharing a joint line for many years. The plaintiffs were entitled to compensation for the amount which will be required to correct the defect.

In early 2003, a leak occurred in the roof above the kitchen. The vendor made arrangements to have it repaired. It did not leak again until the Spring of 2004, at which time it required far more extensive repairs. The Court dismissed this part of the purchasers’ claim.

There was also a claim for water damage in the basement. When the defendant listed the house early in 2003 she completed for the benefit of prospective purchasers a Seller Property Information Statement . In answer to the question “Are you aware of any moisture and/or water problems in the basement or crawl space?” she answered in the affirmative and commented “In spring.”

The court made the following findings of fact:

• the understatement on the SPIS was a description of the traditional water problem water problem which had existed until 2002.

• About the time the defendant was completing the SPIS in February of 2003 she was beginning to experience an accumulation of water for the first time.

• The SPIS was not amended to show the new reality.

• By May of 2003 the basement floor was looking “crummy” according to the defendant.

• It is probable it was by then stained by the water which accumulated rather than was being carried away.

• About May of 2003 and approximately 3 months after the property was listed the defendant’s son painted the basement floor because it now looked “crummy.”

• Ankle deep water in a basement is a defect.

• Painting that floor was in this case a concealment of that defect.

• It adversely affects the habitability of the residence and in particular the basement.

• The defendant had recently become aware of the newly acquired defect and had a duty to disclose it, but did not.

The purchasers were awarded a judgment for damages reflecting the cost of replacement of the sewer drain system and the cost of repairing the leak in the basement.

COMMENT:

The reasons for Judgment do not specify whether the SPIS document had been made part of the agreement, or whether it was merely a representation that accompanied the listing.

However, when answering the questions, the vendor has to consider normal usage of the building. The answers have to be reasonably objective and be considered in light of the normal usage of the premises by a reasonable purchaser. The drainage system needs to be sufficient to draw waste water away every day of the week, not just on some days and at intervals. This was in fact a system that was connected to the municipal system.

The original SPIS was completed when the property was listed for sale, however, things changed. Water leaked into the basement and the SPIS needed to be updated. It was not, and therefore this constituted a misrepresentation.

Painting the basement floor just aggravated the circumstances and amounted to concealment.

In this case, just being “elderly” was not a good enough excuse!

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