May 6th - 2012

Ask questions about UFFI in real estate transactions

Although the number of homes containing UFFI (urea formaldehyde foam insulation) has declined greatly in recent years, many real estate documents still take into account the existence of this controversial substance.

Although the number of homes containing UFFI (urea formaldehyde foam insulation) has declined greatly in recent years, many real estate documents still take into account the existence of this controversial substance.  

Developed in Europe in the 1950s, UFFI was seen as an improved means of insulating difficult-to-reach cavities in house walls. The compound was typically made at construction sites from a mixture of urea-formaldehyde resin, a foaming agent and compressed air. During installation, UFFI has the appearance and consistency of shaving cream.

In the 1970s, when concerns about energy efficiency led to efforts to improve home insulation in Canada, UFFI became an important insulation product for existing houses. Most of its installation occurred between 1977 and 1980 -- the year it was banned in Canada.

During the insulating process, the compound is created through the addition of a slight excess of formaldehyde – a pungent, colourless gas found in certain resins, glues and bonding agents. According to the Canada Mortgage and Housing Corporation, its use became questioned after it was injected into the walls and other areas of some homes and formaldehyde gas was later released into some of them. An estimated 100,000 Canadian homes were insulated with UFFI during the late 1970s.

The compound was banned by Health Canada in 1980 because of potential health concerns. Then, just when the fuss began to die down, the issue resurfaced four years ago with Health Canada’s discovery of the illegal sale and installation of RetroFoam – a new type of UFFI – in certain areas of Ontario. In a consumer advisory, the federal health department described the new substance as a urea formaldehyde-based thermal insulation – the same type that was banned 30 years earlier under the Hazardous Products Act. 

Despite the fact that health concerns have subsided in recent years, UFFI is still a concern among many lenders and consumers. In light of these concerns and court decisions about seller and registrant liability, the Ontario Real Estate Association has retained text about UFFI in various documents, including the Agreement of Purchase and Sale and the Seller Property Information Statement (SPIS). In many real estate boards, the MLS® system data input sheet also contains a section for brokers and salespeople to note whether a property contains UFFI.

Wayne Gauld, a REALTOR® from Kenora, Ont., came across a property last year with a UFFI history. “We were lucky because it was the same home we’d listed 15 years earlier and so we had the historical data at our fingertips,” says Gauld. “I knew that the UFFI had been removed, and because everything was so well documented, the buyers felt very comfortable that this house posed no health risks.”

Gauld says that homes insulated with the substance in his area are now rare, but he believes the UFFI clause should always be included on listings. “We always discuss insulation issues as part of the home buying and selling process up here in the cold north,” he says. “I believe that people are still worried about UFFI so I talk to them about it -- addressing their concerns is part of my role.”

Whether or not UFFI has been proven to cause significant health risks, its current or previous presence in a home is still considered to be a significant concern to various buyers and lenders – in other words, a “material fact” that would affect a reasonable person’s decision to buy a property. Under the REBBA 2002 Code of Ethics, registrants are required to disclose all material facts related to a property to clients and customers.

When dealing with a property that may contain UFFI, note that section 8 of the code requires you to advise clients and customers to seek assistance from other professionals when a matter is beyond your expertise or legal authority. 

Due diligence should be undertaken by REALTORS® dealing with a house that potentially contains UFFI, notes Gauld. “It always reflects back on us,” he says. “We should make sure that the SPIS is filled out and then ask questions – not only of the sellers -- but also of other real estate practitioners involved in the transaction.”

Reviewing the files and historical data on a property listing is a routine part of the listing process in his office, says Gauld. “We always look back in the files to see what they can tell us about each house,” he says. “It’s definitely a worthwhile use of our time.”

Tips for dealing with a physical stigma such as UFFI
When representing sellers:

  • Use a Seller Property Information Statement (SPIS) to learn everything you can about a property when you take a listing
  • Raise the issue of “pure” physical and neighbourhood stigmas with the sellers and ask questions about them, even if your SPIS does not specifically include these types of questions
  • Recommend a professional property inspection as part of the marketing package. Any defects can then be disclosed and/or fixed in advance
  • Ask the sellers if they have ever made a claim on their property insurance policy, and, if so, for what
  • Advise the sellers that it is in their best interest to err on the side of disclosure, and suggest that they discuss disclosure with their lawyer
  • If the seller refuses to disclose a defect that you know must be disclosed, turn down the listing
  • Ensure that all clauses in the agreement of purchase of sale are understood by the sellers and accurately reflect the UFFI situation

When representing buyers:

  • Recommend a professional property inspection prior to firming up the deal
  • Ask the listing brokerage for a copy of the SPIS
  • Suggest that the agreement be conditional on being able to obtain property insurance
  • Ensure that all clauses in the agreement of purchase of sale are understood by the buyers
  • Check that the documents accurately reflect the UFFI situation

For more information, see Urea Formaldehyde Foam Insulation in OREApedia. Also see Legal Forum for questions and answers about UFFI (under topic: UFFI, subtopic: Disclosure); or in the Legal Resource section of www.orea.com under Legal Pamphlets and click on Caveat REALTOR® - Disclosing Defects. You can also visit www.cmhc.ca and type UFFI in the keyword search area. 

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Ontario Real Estate Association

Jean-Adrien Delicano

Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246