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Property Condition Disclosure Statement: To Do, or Not to Do?

SKRealEstateLaw Property Condition Blog FI

Property Condition Disclosure Statements or “PCDS” are subject to a steady debate both of their value and the risk that they create by those providing the statements.   Their value is questioned by some as the statements are based on the vendor’s knowledge can be difficult to establish, but the risk is the purchaser will look to sue if one of the representations are incorrect. 
 

A Court of Appeal decision (Soboczynski v. Beauchamp, 2015 ONCA 282 (CanLII), http://canlii.ca/t/gh99g) out of Ontario brings one more wrinkle to that discussion. What happens if you give a PCDS, but it isn’t part of the contract?
This decision is a little unusual though:
(1)  The SPIS (the ONT equivalent to SK’s PCDS) was completed and provided following the execution of the contract but prior to the removal of conditions and the inspection. 

 

(2)  The SPIS was not included anywhere in the contract, or incorporated in its terms.  The judge also found that it was not relevant to any portion of the home inspection.

 

(3)  Following the firming of the deal, the Vendor had a flood, and accordingly through the SPIS, they were to report any changes in the information.  The flood would have constituted a change that should have been reported.
The initial trial judge at the Ontario Superior Court determined that while the statements were not part of the contract, they could be sufficient to give rise to the tort of negligent representation.  However, the ‘whole agreement’ clause would preclude reliance on those representations, and thus the action was not made out.   Despite not being successful, the judge determined that if the plaintiff was successful, damages for repair, correction, and mental suffering were tagged at $25,000.
The Divisional Court determined that it was an error to rely on the ‘whole agreement’ clause, as the representations were given after the agreement was signed.  The whole agreement only deals with representations provided at or before signing. The court said that reliance was established because they could have looked to the rescission and abatement remedies provided in the contract if they were told about the flood.
The Court of Appeal agreed with the Divisional Court on the interpretation of the ‘whole agreement’ clause.  However, it disagreed that there was any reliance on the statements (or lack of statement) to make out the tort of negligent misrepresentation.  Reliance is one of the five elements (see paragraph 70 for the list in the judgment).  The Court said there was no reliance because there was no damage.  The damage inside the house from the first flood was repaired by the Vendors prior to possession.
My beef with this decision is that the trial judge determined that there was $25,000 worth of damage from the second flood.  The Plaintiff’s expert determined that this was due to the pooling in the yard and other problems.  The court failed to deal with how that damage impacted the Plaintiff’s reliance under the five elements.  Presumably, if the plaintiffs were advised of the damage, they could have further inspected the damage to assess what needed to be done to remedy it for good, and those damages could have been identified prior to closing.
I suspect that if the court would have considered that in its reasons that the claim would still not be successful.  Presumably, the grade issues could have been identified by the inspector, and that the inspector failed to identify it (Although it might have been outside the scope of his work). However, to avoid the issue with the damages identified from the earlier trial judge seems to only resolve the issue half way.
A bunch of really great takeaways and reminders though:
(1)   Liability can still arise from a PCDS even if it is not part of the contract.

 

(2)   A good reminder that the obligations to report under the PCDS are ongoing up until the date of closing.  The last PCDS I looked at had the following language (not sure if this is current form though):

 

“Any important changes to this information made known to the SELLERS will be disclosed by the SELLERS to the BUYERS prior to closing.”

 

(3)   A good highlight of the rescission remedies in the standard Realtors’ Offer to Purchase contract.  It states:

 

“7.5 If substantial damage or change to the property occurs prior to the Completion Date, including any material change in the Estoppel Certificate and/or Additional Items for Condominiums, this contract shall be terminated and the deposit shall be forthwith returned to the Buyer, unless the damage is repaired and the change remedied, or otherwise agreed to by the Buyer and Seller in writing.”
Happy Buying and Selling!!
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