It used to be that a person buying a house was very much on their own when it came to checking out the condition of the property and the matters affecting its use. The Latin maxim caveat emptor summed it up: “Let the buyer beware”. Realtors were the agents of the seller and this was so for both the listing Realtor and the selling Realtor (who showed the potential buyer several properties and finally wrote the offer up on the selected one). Of course since 1994, the selling Realtor has become the agent of the buyer as discussed in my article Dual Agency.

With the ever-expanding liabilities imposed by courts under the law of negligence, it came to be that Realtors could not escape liability to a buyer completely even though they were acting for the seller. It was determined that buyers could reasonably rely upon the expertise of Realtors showing them a property to be careful in statements made and in warning the buyer of problems with respect to the condition of the property. This duty of care expanded over time to the extent that real estate boards introduced the use of Property Condition Disclosure Statements. On taking a listing, a listing Realtor will present the potential seller with this from of disclosure statement and assist them in completing the information on it. This disclosure statement then becomes a part of the Contract of Purchase and Sale.

Real estate lawyers are not unanimous in their opinion with respect to use of a Property Condition Disclosure Statement. Some lawyers recommend their selling clients to not complete the disclosure statement because it simply exposes them to the potential of increased liability in the event an error is made or some problem is discovered with the property which appears to be inconsistent with the statements made in the disclosure statement. The sellers may become liable for negligent misrepresentation or breach of warranty. On the other hand, the use of Property Condition Disclosure Statements has become so widespread that it is not unreasonable for a buyer to question the absence of such a statement. “What is wrong with the property if the seller will not complete disclosure?”. The answer to this question is clear if the seller is the executor of an estate and has insufficient personal knowledge with respect to the condition of the property in which the deceased testator lived. It is equally clear when the seller is a foreclosing lender. The fact that the seller is the owner of a revenue house in which they did not live may also be a sufficient explanation.

In the event that the seller determines to complete a Property Condition Disclosure Statement great care must be exercised in answering the questions. It may not be sufficient to simply state that one is unaware of a particular condition or that the condition does not exist when repairs have recently been carried out. Two recent cases are of assistance in this regard.

In Dirksen v. Au [1996] BCJ No. 2738 the sellers had taken their condominium unit off the market on two occasions prior to its selling because of water leakage problems. The listing Realtor helped the sellers fill out a Property Condition Disclosure Statement in which they answered the question “Are you aware of any damage due to wind, fire, water?” in the negative. No one told the buyer’s agent about the history of water difficulties and it would seem that the repairs had obscured any evidence of previous damage. Soon after buying the condominium, the buyers encountered water leakage and sued. The provincial court judge held both the sellers and the listing agent liable for negligent misrepresentation in preparation of the disclosure statement. The judge found it significant that leakage had occurred so recently before the listing of the property but it was not disclosed.

In Chamberlain v. Jenner [1997] BCJ No. 32164 the seller of a house had encountered water seepage two years prior to listing the property when a water pipe failed and again a year later when water seeped into the basement following installation of a sprinkler system. Both problems had been repaired at the time and no further difficulties experienced since. The seller listed the property in November 1995, completed the disclosure statement and answered the question, “Are you aware of any moisture, and/or water problems in the basement or crawlspace?” in the negative. The house sold and the buyer moved in. In May 1996 the buyer discovered a puddle of water on the basement floor, hired an engineer, and learned that the seepage was the result of improper placement of concrete footings in the house. The buyer sued the seller for misrepresentation, but the court dismissed the claim. The judge believed that the seller was unaware of any seepage or structural problems. In addition, more than a year had lapsed since the previous water problems had been repaired. It was reasonable for the seller to conclude that the repairs solved the problem.

Realtors can learn from these cases. In taking a listing, a Realtor should ask the potential seller whether any significant problems have occurred on the property within the last year or two even if they have been repaired. In this way, knowledge of problems can be denied, but the fact of repairs can be explained. In addition, buyers or their agents can ask if repairs have been performed recently which are not shown on the disclosure statement. If the answer is yes then consideration might be given to include in the Contract of Purchase and Sale a warranty that the repairs have solved the problem.

Over time, the risk of defects in a property has shifted from the buyer alone to the buyer and the seller and both their Realtors in questioning and disclosing significant matters affecting the value and enjoyment of a property.

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March 8, 2000