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This case is a lesson for real estate agents

A decision from the Ontario Superior Court in the last year highlights the obligation of real estate agents to review home inspections with their clients. Mrs. P. and her mother wanted to buy a property in Toronto’s west end.  Their real estate agent introduced them to a house they liked. When they visited the house, they were shown a summary of a home inspection report prepared for the owner.   It indicated, among other things, leakage of water around a skylight on the second floor.The agent prepared an offer for the buyers to sign.  It required the seller to fix the skylight.I represented the buyers when they closed their $730,000 purchase.   After closing, a serious mould problem appeared throughout part of the house which was occupied by tenants, forcing them to move out.

A mould growth expert was called in and he reported significant contamination in several areas due to water seeping into the basement through the foundation and upstairs through leaks from the skylights.

Unknown to the buyers, two years before their purchase there had been a major flood in the basement, resulting in considerable evidence of mould and mildew.

As a result of the mould infestation, the buyers incurred damages exceeding $141,000, including repair costs and lost rent.  Subsequently they sued the sellers and their agent.

At the trial before Justice Thomas Lederer , a key issue turned out to be whether the agent had an obligation to alert the buyers to the significance of the summary of the home inspection.

After hearing evidence from Barry Lebow, an expert in the duties of real estate agents, the judge wrote, “It is not as if there were no hints or indications that something was amiss. The summary of the inspection undertaken on behalf of the seller and available at the time of the inspection should have or, at least, could have raised concerns in the alert reader.”

“As seen by Barry Lebow this was a wake-up call. It should have been apparent, particularly to an experienced agent, that, at the least, this required an examination of the full report to be assured that there were no further or unforeseen problems.”

The buyers were never shown the full report.

In ultimately assessing liability, Justice Lederer wrote:

“The agent owed the buyers more than drawing up an offer that had the best chance of success. She was required to provide advice as to the risks of doing so in order that her clients could make an informed choice as to how best to proceed. … she did not counsel her clients as she was obliged to do.”

A reasonable agent, the judge concluded, would have obtained and reviewed the full report.  Had she done so, “a great deal of the problems that ensued could have been avoided.”

In the end, the agent was required to pay 25 per cent of the $141,105 in damages, or $35,276. She also paid $35,000 in costs.  The buyers had to absorb 25 per cent of the damages themselves.  For the buyers, it was a moral victory if not a financial one. Prior to trial, the seller signed a confidential settlement agreement with the buyers, so we will never know what share of the damages, if any, he absorbed.

But the case is a lesson for real estate agents who are now on notice of their obligation to review home inspections with their purchaser clients.

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 bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.

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