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Making misrepresentations in listings, sale agreements or SPIS forms is risky, as recent court ruling of fraud shows.
A couple purchased a property in Sturgeon Falls, Ont., back in 2009.
The house had been advertised on the North Bay Multiple Listing Service as being a “gorgeous Lake Nipissing 4 bdr Cape Cod-style home” having “2 + 2 bedrooms,” and “2/2 bathrooms.”
A Kijiji ad said the property had “a large detached garage with a one-bedroom apartment.”
The agreement of purchase and sale provided that the sellers would install a new eco-flow septic system at their own expense.
The sellers also signed a Seller Property Information Statement (SPIS).
The buyers declined a home inspection and, shortly after the deal closed, the well water began to smell and could not be used for drinking.
The buyer realized that the new septic system was too small for the property and he was advised by the North Bay Mattawa Conservation Authority that the septic system was inadequate. It appeared to the buyer that the garage loft apartment had not been included in the calculations for the size of the new septic system.
The buyers ultimately sued the sellers for damages for misrepresentation. The trial took place in December 2016, before Justice Louise Gauthier. Her judgment was released last month.
In a detailed decision of almost 22,000 words, the judge ruled that the sellers breached the agreement of purchase and sale by installing a septic system inadequate for the property being marketed and sold. In doing so, the judge wrote, the buyers had established a claim of civil fraud.
Justice Gauthier also ruled that the sellers breached their duty to comply with the Building Code Act by not installing a septic system of the appropriate size and capacity. As well, she ruled that the sellers breached the warranty in the agreement to install a new septic system because it was not capable of serving the property.
She added that a representation about the new septic system in the SPIS was not a full, frank and accurate disclosure of the suitability of the system to be installed. It did not disclose that the proposed system specifically excluded the loft apartment and was based on inaccurate descriptions of the main residence.
Many court cases have dealt with negligent misrepresentation, but in this case the decision is notable for its finding of fraud.
The judge denied the the buyers’ claims for lost rental income for the loft apartment, for the poor quality of the water, for damage to the pipes in the loft and for the non-functioning lawn sprinkler.
In the end, the plaintiffs were awarded damages of almost $48,000 for the septic system and for the repair of a crack in a retaining wall.
For sellers, the takeaway lessons from this case:
Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.
He can be reached by email at firstname.lastname@example.org, phone 416-364-9366 or fax 416-364-3818.