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Sellers and real estate agents will advertise the top-selling features of a home in order to attract the largest number of potential buyers. However, be careful what you say. If it turns out wrong later, you may have to pay for it.
Mr. A. bought a detached home in Toronto in September of 2009 for $439,000. He purchased it “as is” from a family who had owned it since 1967. The basement was not finished.
He then obtained the proper permits to extensively renovate the home, including a refinishing of the basement, and sold it to Ms. B. and her mother in September of 2010 for $658,000.
When the house was listed on the MLS service in May of 2010, it stated that “This house was gutted to the bare bones, and has literally been rebuilt from scratch. Except for the four exterior walls, almost everything else is new. New insulation, framing, walls, floors, roof, electrical, plumbing.”
In another brochure which was given out to potential buyers at the property, it stated “Fully insulated from basement floor walls all the way to attic. Basement designed as a comfortable entertainment centre and/or spacious home office. Gutted to the bare bones.”
A home inspection was done for the buyers. In the report it indicated some concerns about potential basement leaks. In particular, it said that “Cannot predict how often or badly crawl space or basement will leak and that there were “efflorescence, stains dampness on the exposed foundation wall, and that these are typical conditions not out of the ordinary for a home that age. It turned out that 99% of the foundation wall was not visible, as is usually the case when homes are inspected.
The report further stated that since the inspector could not see behind the walls, the buyers were encouraged to consult a licensed contractor or engineering specialist.
The buyers stated that they started to smell musty odours and dampness almost immediately after closing. No investigation was done behind the drywall as they did not wish to do any unnecessary damage to the finishes. There was then a major flood one year after closing. Most of the costs incurred to repair the damage were covered by insurance.
The clean-up crew did discover that the north foundation wall of the basement leaked water. In order to repair this, it was discovered that there were exposed cracks in the mortar between the cinder blocks, including one crack that appeared to have been crudely plugged with a piece of wood in an attempt to stop the flow of water.
The buyers sued, claiming that the defect was hidden, and that the seller must have known about it if he did in fact gut the basement to the bare bones. The seller stated that he never saw any leaks and did not notice the piece of wood because he did not strip the basement walls to the cinder blocks, but rather just insulated and dry walled the area in front of the existing plaster.
The buyers sued for $8,659, being the cost to repair the leaky basement wall. They also claimed $1,000 in punitive damages, stating that the seller deliberately concealed the problem.
In a decision dated April 2, 2014 in the Toronto Small Claims Court, Deputy Judge Jack Prattas determined that even though the seller did not know that the problem existed with the basement walls, he was still responsible to pay because he had carelessly represented that the property was gutted to the bare bones, and the buyers relied on this when buying it.
Thus he found that the buyers were misled into believing that they were getting a basement which did not have any hidden defect.
However, the judge also found that as a result of the warnings by the home inspector, the buyers should assume part of the risk since they chose not to do any further inspections. He awarded the buyers 50% of the damages, or $4,329.50. No punitive damages were awarded.
There are important lessons for buyers and sellers from this decision:
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