By David Lucenti, Associate
A couple of weeks ago, a client came in to see me regarding the sale of her home. She asked me to review the Agreement of Purchase and Sale and “this questionnaire” she had been given by her real estate agent. The client was not entirely sure if completing the questionnaire was mandatory and asked me whether or not she should fill it out and provide it to the prospective purchaser.
I explained to my client that the “questionnaire” she was provided was a Seller Property Information Sheet (“SPIS”). The standard 2-page document is prepared by the Ontario Real Estate Association and contains various questions regarding the condition of the house (such as plumbing, electrical, water damage), which the vendor is invited to complete and provide to the purchaser. Completion of the SPIS is not mandatory. However, the document is often used by real estate agents in the course of showing the property.
Nevertheless, and in light of the recent Ontario Court of Appeal decision in Krawchuk v. Scherbak, I advised my client that it was not in her best interest to complete the SPIS.
In Krawchuk, the real estate agent assisted the vendors in completing the SPIS. In response to the question, “Are you aware of any structural problems?” the vendors replied, “NW corner settled” and “No further problems in 17 years”. The vendors also responded “No” in response to the question, “Are you aware of any problems with the plumbing system?”.
The transaction closed in the normal course.
After moving into the home, the purchaser discovered that the foundation walls were sinking into the ground, resulting in inadequate support for the floor joists and building above. In order to fix the problem, the house had to be lifted from its foundation, the existing foundation had to be replaced and the house moved back to its original position. In addition, there were ongoing problems with the plumbing. The real kicker -- the cost to remediate the problems was nearly double what the purchaser originally paid for the house!
Not surprising, the purchaser sued the vendors, the real estate agent and the real estate broker, for misrepresentation. Specifically, the purchaser alleged that the parties failed to disclose the hidden defects in the home. At trial, the vendor was found liable for misrepresentation, as a result of the statements made in the SPIS, and was ordered to pay the purchaser $110,000.00 in damages. The action against the real estate agent was dismissed.
The vendor appealed.
The Court of Appeal agreed with the trial judge in respect of the vendor’s negligence, holding: “...although preparing a SPIS is not mandatory, once it is issued, the buyer is entitled to rely upon it”. However, the Court of Appeal also held that the real estate agent was jointly liable for “egregious lapses”. The Court found that a real estate agent has a duty “to verify information provided by the vendor about the property”. In essence, the real estate agent should have done more. Once the real estate agent was made aware of the issues (past or present) regarding the house, she should have inquired further.
As early as 2006, lawyer Bob Aaron, has cautioned vendors against completing the SPIS. In various articles, Mr. Aaron has criticized the use of an SPIS, as being “overly complex, dangerously ambiguous, misleading and technical”. Mr. Aaron suggested that most vendors simply cannot fully appreciate the legal nature of the questions being asked.
Notwithstanding, real estate agents have often believed that having a vendor complete the SPIS would guard against any potential liability claims against their client (and themselves!).
However, the Court of Appeal in Krawchuk has clarified this mistaken belief.
So, if you are ever asked to complete an SPIS, I suggest contacting a lawyer before doing so. If I was your lawyer, I would tell you exactly what Mr. Aaron tells his clients: “I always tell sellers never to sign one, but if they do they should always get the number of a litigation lawyer. A good one. Chances are they’re going to need it”.