Non Disclosure of Defects Can Be Costly

One of the most important services that a listing realtor is expected to offer to a vendor is to promote the property in order to attract buyers. Marketing the property through advertising allows for a good deal of creative license. However, there can be a dangerous side to generous description of your client’s property. It is an age-old principle that a vendor is entitled to describe his property in flattering terms in order to attract buyers. Advertising terms, which may later be considered by disappointed purchasers to be exaggerations are not generally something that will form the basis of a cause of action. An old English court described such solicitations as "a mere puff", part of the normal way in which goods or property are promoted by eager vendors. Purchasers are told "buyer beware".

However in this month’s case*, vendors crossed the line into liability when they stated in the disclosure statement and orally that the house was in "perfect condition". The purchaser moved into the house and discovered damage to walls, floor boards and flooring resulting from water and sewage seepage. The cause was determined to be the poor construction of basement walls and poor drainage. The court found the vendors knew about the damage and had even consulted a contractor regarding excavation. The defect in the house was not easily discernible on a normal inspection.

The purchaser sued the vendor and realtors, but was unsuccessful against the realtors. The court found that the realtors where not liable because that they did not know of the defect nor should they have known about it in the normal course of their duties as listing and sales agents.

The purchasers did succeed against the vendors who had remained silent regarding the basement wall problem through the course of listing and sale. This silence combined with their oral and written representation of "perfect condition" was found to amount to fraudulent misrepresentation. As an alternative the court found that they had breached the contract. The important point is that the vendors knew that the purchasers would likely rely on their representation of "perfect condition" and there is nothing that would put the purchasers on guard to make a more thorough inspection or examination of the premises.

This is a good case to keep in mind if your vendor casually mentions a minor problem that you may not have noticed after the property has been listed and advertised in glowing terms. If the problem turns out to be not so minor, there is a risk that liability will attach to the realtors for not making an effort to discover the true nature of the problem. On the purchasers side, this case further supports the hiring of a qualified and capable home inspection service as a condition of sale.

This article was prepared by Geord Holland of Pushor Mitchell LLP of Kelowna B.C. This column is not to be taken as legal advice and readers with any particular requirements should seek legal advice from a lawyer with experience in the area of concern.

*Edwards v. Crocker (May 14, 1998), Penticton Registry 11403 (1998) (BCSC)

By Geord Holland