Originally published in Real Estate Magazine Online on
November 11, 2015.
The Ontario Superior Court has once again underscored how
completing a seller property information statement (SPIS) can be a
risky move for vendors.
When it comes to the purchase and sale of real estate the
starting point for any analysis is "buyer beware". For
those looking to impress at cocktail parties, the specific
expression is "caveat emptor, quit ignorare non debuit quod
jus alienum emit," which translates into "let the
purchaser, who is not to be ignorant of the amount and nature of
the interest, exercise proper caution."
This general rule of buyer beware applies to defects that a
purchaser could have discovered by means of a routine inspection
(known as a "patent defect") and also "latent
defects" (those not discoverable by routine inspection, which
are unknown to the vendor).
Notwithstanding the purchaser's obligation to do their own
due diligence, the rule of buyer beware goes out the window once
the vendor has made a misrepresentation.
A SPIS is a standard form document that was drafted by the
Ontario Real Estate Association. It will contain information
relating to defects, renovations and other pertinent property
information based on the seller's knowledge and experience.
A vendor is not obligated to complete a SPIS and if the vendor
elects to do so they open themselves up to significant legal
The law in Ontario is that once a vendor completes a SPIS it
creates the relationship necessary in law to hold a vendor legally
responsible if the information contained in the SPIS is wrong or
misleading. Although the buyer has a duty to investigate, the buyer
is not required to challenge the honesty of the vendor and is
entitled to rely on the representations made by the vendor as
though they were true.
A recent decision (Ménard. v Parsons, 2015 ONSC 4123
[CanLII]) illustrates how the courts are willing to expand
the vendor's obligation to make full and fair disclosure once
they have elected to complete a SPIS.
In Ménard, the property in question was a beautiful home
that had been constructed by the vendor on two large manicured
lots. The only catch is that the home was built on top of a
discontinued landfill site, a fact well known to the vendor.
The vendor completed a SPIS. The two pertinent questions and
answers for the purpose of the litigation were as follows:
1. "Are you aware of possible environmental problems or
soil contamination of any kind on the property or in the immediate
area? E.g.: radon gas, toxic waste, underground gasoline or fuel
2. Are there any existing or proposed waste dumps, disposal
sites or landfills in the immediate area?
Of particular interest for this article is how the court treated
the answer to question number two.
Around the time of the transaction there was a "notorious
battle" in town and the surrounding area concerning the
prospect of a chemical disposal site being constructed. This battle
was constantly in the local news. The purchasers testified at trial
that they believed the answer to question two to be in reference to
the proposed chemical disposal site. The court held at trial that
answering "yes" without any further explanation in the
circumstances of this transaction was misleading to the point that
it constituted a legal misrepresentation.
The purchasers discovered the existence of the discontinued
landfill prior to the closing of the transaction and refused to
close. The vendor ultimately sold the property to another purchaser
for $100,000 less and sued the initial purchasers for the loss. The
court dismissed the plaintiff's claim and awarded the initial
purchasers their out of pocket expenses in respect of the aborted
transaction for a number of reasons, including the
misrepresentation that was held to have been made in respect of
question number two.
Again, vendors are under no obligation to complete a SPIS. In
doing so, vendors open themselves up to liability and displace the
fundamental principle of buyer beware.
The Ménard decision and the court's treatment of the
answer to question number two is demonstrative of the risks that
vendors expose themselves to by completing a SPIS.
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