November 2017 FAILURE TO DISCLOSE PROVES COSTLY
In the summer of 2012, a seller was advised by his neighbour that environmental consultants were inspecting the neighbour's property for possible contamination, and would contact the seller to do similar tests on his property. In August and September, the seller received two separate "Notification of Likely or Actual Migration" forms from the environmental consultants. In October, representatives of the environmental consulting firm drilled, sampled and installed five monitoring wells on the seller's property, which were covered over with sod.
In February 2013, six months after receiving the notifications and four months after the monitoring wells were installed, the seller listed his property for sale. He completed a Property Disclosure Statement (PDS), which was incorporated into and formed part of the eventual Contract of Purchase and Sale. In the PDS, the seller answered "No" to the question "Have you received any other notice or claim affecting the Premises from any person or public body?" He also left blank the section which invites the seller to provide additional information or explanations about the condition of the property.
The buyer didn't discover the possible contamination of the property or the existence of the monitoring wells until after the purchase had completed. The buyer sued the seller for fraudulent, or in the alternative negligent, misrepresentation.1 The buyer argued that the seller's actions amounted to fraud. The judge noted that our courts have observed that "the classic and most obvious form of fraud is where the vendor positively misstates to the purchaser facts which he knows to be false, for the purpose of deceiving the purchaser."2
The seller testified that, at the time he completed the PDS, he didn't really recall getting the notifications, and that if he did recall he didn't connect the notifications with the question that he answered in the negative. His position was that he answered every PDS question honestly and to the best of his knowledge, and that he didn't intend to deceive the buyers. He further testified that, after completing the PDS, he informed his REALTOR® of the possible contamination and the monitoring wells, and his REALTOR® advised that he didn't need to disclose those facts. His REALTOR® denied providing such advice and further denied the matter ever being raised with him.
Fortunately for the seller, the court concluded that the seller's actions weren't fraudulent. However, the seller was found liable for a negligent misrepresentation. He had to reimburse the buyers for the loss resulting from the seller's failure to disclose the receipt of the two notifications, and his failure to disclose the existence of the monitoring wells, which were not visible to the naked eye.
From the evidence, the court concluded that the general contamination issue was clearly on the seller's mind, yet by completing the PDS the way he did, the seller didn't bring it to the attention of the buyers. The court concluded that, had the buyers been aware of the environmental issues, they would not have made the offer they did.
The seller's alleged raising of the contamination issue with his REALTOR® after completion of the PDS raises an interesting issue. It's conceivable that after completing a PDS, a seller might conclude that one or more of their answers was incorrect or require explanation, or that events subsequent to the completion of the PDS have rendered all or part of the PDS inaccurate. In those cases, the seller has an obligation to correct the error. Failure to do so may result in liability.
Norton Rose Fulbright LLP
"Copyright British Columbia Real Estate Association. Reprinted with permission."