November 8th - 2004

Merv's Column: No disclosure is no excuse

The sellers were the original owners of the house and sold to Relocation Services.

The sellers were the original owners of the house and sold to Relocation Services. Before that sale was registered, Relocation sold the property to the buyer. When the property was being sold to Relocation a disclosure statement was obtained from the sellers that stated that the sellers were "not aware of any moisture and/or water problems in the basement or crawl space."

When Relocation sold the property the parties signed an Agreement of Purchase and Sale. The contract specifically stated that the "Property Condition Disclosure Statement dated Oct. 13th, 1999 is incorporated into and forms part of this contract." Relocation also executed a blank Property Condition Disclosure Statement, which was not executed by the buyer, and which was not completed, but had a line drawn through the body of the document. Relocation said this meant that there was no disclosure statement by themselves to the buyer and that they cannot now be found liable based on a wrongful disclosure as they did not in fact make any disclosure. Relocation also said that the property was purchased in “as is” condition as stated in the printed portion of the offer and that another paragraph stated that the "buyer may have an option to obtain a satisfactory building inspection report before the subject removal date." The buyers did not contract an inspector to inspect the property.

A REALTOR found water in the basement of the house and immediately contacted Relocation to advise them of the problem. Relocation advised him not to disclose to the purchaser but to have a company come in to dry the carpet. The REALTOR and his company wrote to Relocation to confirm those instructions and to state that they did not agree with not advising the buyer of the water problem. Relocation faxed a letter to the buyer on the closing date and advised that water was discovered in the basement and that it had been cleaned up. The buyer immediately called his lawyer upon receiving the fax to cancel the purchase, but his lawyer advised that the transfer had been completed.

The judge said, "What occurred here was a deliberate withholding of information by the defendant (Relocation). They did not complete any disclosure statement themselves, but relied on the statement of the previous owners. By so relying on information from other persons, and choosing not to inspect and make a disclosure statement of their own as sellers, they had a duty to inform when they became aware of information which was contradictory to the information they were relying on. Failing to reveal that information is fraudulent. The defendant (Relocation) deliberately hid this information and attempted to purge their actions by putting in writing the disclosure that was required of them on the day of completion when it was too late for the claimant to stop the purchase. The defendant (Relocation) cannot hide behind the disclosure statement of the previous owner, nor the 'as is' in the printed part of the Offer to Purchase document or the fact that the claimant did not obtain his own inspection prior to November 22 if their own actions were fraudulent." The salesperson and his brokerage were not liable.

Padda v. Royal LePage Relocation Services Ltd. 2002 BCPC 51.

MERV'S COMMENTS
A similar situation came up on OREA's Legal Forum. A home inspection was done and there were no problems. A few days later there was a rainstorm– and problems developed. Do you tell the buyers? My answer was Yes. The
ethical, and from this case also the legal, answer is to disclose.

Summarized from Merv’s comments 2004

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