Ont. CA decision could widen real estate agents’ duties Agent and vendor liable for misstatement on information sheet
By Cristin Schmitz
May 20 2011 issue
Toronto: Real estate expert Bob Aaron contends the court has imposed a higher duty on sellers’ real estate agents to verify sellers’ statements about their properties. [Photo by Paul Lawrence for The Lawyers Weekly]
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In a decision of national interest, the Ontario Court of Appeal has shaken up the real estate industry by holding a real estate agent and a vendor equally liable for the latter’s negligent misstatement on the controversial seller property information sheet (SPIS).
In the view of some real estate experts such as Bob Aaron of Toronto, who is an outspoken critic of the SPIS, the May 6 decision in *Krawchuk v. Scherbak *“significantly raises the bar for real estate agents with respect to their duty to advise and disclose latent defects in a home. I think in the wake of this decision any seller’s agent who continues to use an SPIS is asking for trouble, is inviting litigation, and should immediately contact their errors and omissions insurance company to make a claim even before the offer is signed or submitted.”
Aaron added that in his view “the case seems to say that a real estate agent can no longer act as a [mere] conduit for information about the property from the seller to the purchaser, but it seems to indicate that a real estate agent now has a duty to verify the information, and if he or she fails to do that, he or she is going to be liable, and that the disclaimers [of agents’ liability] on the [SPIS] form basically have little, or no, effect.”
The case before the court arose in 2004 when a first-time homebuyer purchased a house in Sudbury, Ont. which, unknown to her, had very serious foundation problems (it was sinking) and ongoing plumbing defects (the sewers backed up several times a year). The listing real estate agent represented both the purchaser and the two vendors.
At trial the vendors (but not their real estate agent) were held liable for $110,000 for their negligent misrepresentations that they were unaware of any current plumbing or foundation problems.
In its judgment, the Ontario Court of Appeal upheld the vendors’ liability to the purchaser for negligent misrepresentation, but went on to hold the real estate agent equally liable for “egregious lapses” during her representation of both the purchaser and the vendors.
The Court of Appeal held that in respect of the purchaser, the real estate agent ought to have inquired further into the vendors’ disclosure (which subsequently turned out to be incomplete) that the foundation issues with the house were resolved years earlier. Failing that, she should have strongly urged the purchaser to hire a home inspector, the court said.
And with respect to the sellers, who had consulted with the agent when filling out the SPIS, she should have inquired more deeply into the problems they mentioned with the foundation, the court held. (She did not, however, know that they were making false statements.)
Winning counsel David S. Steinberg of Toronto’s Pape Barristers, who represented the purchaser, told *The Lawyers Weekly *the decision doesn’t impose “a sweeping duty which will make being a real estate agent very difficult.”
“I think its important to realize, and this may allay some of the concerns, I hope, that Mr. Aaron and people like that have,…the court went to great lengths to say in a couple of places ‘in the circumstances of this case’ [and] ‘on the facts of this case.’ This is what I would call a principled decision, not a categorical decision,” Steinberg said. “They didn’t lay down some absolute duty for all time. And I don’t think they created one where none existed before. They simply applied it.”
Counsel for the real estate agent defendants, Amelia Leckey of Toronto’s Miller Thomson told *The Lawyers Weekly *there has been no decision yet on whether to seek leave to appeal.
“In our view the Court of Appeal failed to distinguish between the standard of care and duties of a buyer’s agent, as opposed to those of a consensual dual agent, and the burden placed on the agent with regards to the completion of the SPIS is excessive, especially given the findings of fact and credibility made by the trial judge in this particular case,” Leckey said.
Court of Appeal Justice Gloria Epstein described the most important legal issue raised by the case as “the duty of a real agent to verify information provided by the vendor about the property that is the subject of the transaction.”
On that score she and Justices Marc Rosenberg and Eleanore Cronk held real estate agent Wendy Weddell and the real estate brokerage where she worked, liable for the negligent misrepresentations made by sellers Timothy and Cherese Scherbak about their home’s faulty plumbing and foundation to purchaser Zoriana Krawchuk.
In completing the SPIS with the assistance of Weddell, the vendors responded to the SPIS question “Are you aware of any structural problems” with the reply: “NW corner settled…to the best of our knowledge the house has settled. No further problems in 17 years.”
In response to the SPIS question “are you aware of any problems with the plumbing system” the vendors answered “No.”
When the purchaser discussed with Weddell the house’s visible defects, such as the sloped floors, a foam-filled crack in the northwest corner of the crawlspace and sloping exterior brick and block work, the agent conveyed the vendors’ explanation to her that the house had settled, been repaired and there were no further problems for 17 years. Because there was considerable market interest in the house, Krawchuk decided to make a “clean offer,” $10,100 above the asking price, with no conditions (including home inspection).
The severe structural problems became apparent not long after she moved in and she sued.
In its decision, the Court of Appeal reversed the trial judge who had dismissed the claims against Weddell by both Krawchuk and the Scherbaks.
Justice Epstein held that Weddell was negligent in respect of the purchaser Krawchuk because “whatever the standard of care, given the obvious defects in this house, Ms. Waddell had to either further verify the [sellers’] assurances herself or recommend, in the strongest terms, that Ms. Krawchuk get an independent inspection either before submitting an offer, or by making the offer conditional on a satisfactory inspection. The failure to do either was an egregious lapse.”
With respect to the vendors, Justice Epstein held, “the Scherbaks specifically sought Ms. Weddell’s advice about answering the question on the SPIS concerning the [foundation] settlement issues. At the very least, Ms. Weddell had an obligation to question the Scherbaks further about their experience with the settlement issues — whether they had performed any work on the house that shed light on the state of the foundation of the house and then appropriately counsel them with respect to the implications of the representations they made in the SPIS. Ms. Weddell’s failure to do so represented a cavalier treatment of the settlement issue — an issue that was on the minds of everyone involved. This failure amounted to an egregious lapse in terms of her duty to the Scherbaks.”
The Court of Appeal noted that because the Scherbaks were themselves negligent for the incomplete and false representations they made to Krawchuk, they were not entitled to indemnification from Weddell. However her negligence vis-a-vis the Scherbaks had to play a role in apportioning their respective degrees of fault for Krawchuk’s losses — which the appeal court split 50/50 per cent between the vendors and the agent.
“Both the Scherbaks’ actions and the real estate respondents’ actions contributed to Ms. Krawchuk’s damages,” Justice Epstein wrote. “While the Scherbaks were in the best position to have accurate and complete information about the condition of the property, Ms. Weddell should have done more to protect both of her clients.”
In reaching its conclusion, the appeal court rejected the trial judge’s finding of fact that the real estate agent had no reason to question the veracity of the information that the Scherbaks provided to her about the home’s foundation and plumbing (and consequently there was no legal obligation on her to inquire further, or independently, to discern what structural defects might exist). The Court of Appeal held that his finding was “clearly wrong” as in the appeal court’s view it was unsupported by the evidence.
“The only available inference is to the contrary,” Justice Epstein wrote. “The circumstances were such that Ms. Weddell should have verified the accuracy of the Scherbaks’ representations about the house and she did not.”
In the appeal court’s view, the agent had “plenty of reasons to question the veracity” of the Scherbaks’ assurances that the settlement problems in the house had been resolved 17 years before. Reasons: Krawchuk v. Scherbak, 2011 ONCA 352](http://www.ontariocourts.on.ca/decisions/2011/2011ONCA0352.htm).