Known dangerous defects must be disclosed by vendor

Does the doctrine of "buyer beware" allow a seller to conceal the mere possibility that there is a potentially dangerous condition in a house? That was the issue in a case heard earlier this year in Edmonton.

In April 2005, George and Lisa Gibb bought a house in Leduc County, Alta., from Earl and Sherry Sprague. Prior to signing the purchase agreement, the buyers inspected the house three times, and found nothing wrong except some issues with the electrical panel.

Upon taking possession after closing, the purchasers discovered that there was an infestation of carpenter ants in the ceiling of a bedroom and in the roof of the house. As a result, they had to remove the entire roof of the house and replace it with a metal roof.

In the fall of 2005, the owners' son became ill with a headache and cold-like symptoms. The family pediatrician suggested that the symptoms might be due to mould in his basement bedroom.

On inspecting the basement drywall, the owners discovered mould to a height of three feet on the exterior walls, and rust on the bottom of the metal basement support posts.

At about the same time, the Gibbs found that the basement wiring did not comply with the building code, and that the circuits were overloaded.

Unhappy with the condition of the home, the Gibbs sued the Spragues for repair costs alleging that the sellers knew about the defects and fraudulently misrepresented their existence.

In law, whether or not a vendor is responsible for repairing defects in a home depends, to some extent, on whether the defects are found in law to be patent – or obvious, or latent – meaning hidden.

The case was tried before Justice Donald Manderscheid in Edmonton last April.

In his written decision, the judge ruled that the electrical defects were patent defects, and the doctrine of caveat emptor – buyer beware – applied.

The judge ruled that the buyers failed to take reasonable steps to determine the full extent of the electrical problems. As a result, they had to bear the cost of the repairs.

Based on the evidence at trial, the judge was satisfied that the basement leaks and roof infestation were hidden defects because it was unlikely that they could have been discovered on a simple visual inspection of the house without removing portions of the roof and basement drywall.

"I believe," wrote the judge, "that the (sellers) were neither subjectively aware as to the existence of the roof defect, nor did they act in a reckless manner in regards to the roof defect." As a result, he dismissed the buyers' claim for replacement of the roof.

On the issue of the mould in the basement, the judge ruled that the active concealment by the vendors of the mould and a false statement by Sherry Sprague about previous water in the basement amounted to the making of a fraudulent misrepresentation.

The judge wrote that when sellers have experienced a flood in their basement, "it is ... reasonable to expect (them) to advise potential purchasers of the property as to the circumstances (of the flood) ... The Defendants' failure to fulfill this expectation and to advise the Plaintiffs as to the existence of the basement defect amounts to a reckless disregard for the safety of the Plaintiffs and their family."

As a result, the Spragues were found responsible for their "reckless behaviour" relating to the history of flooding in the basement and the resulting possibility of the presence of mould. They owed a duty to the buyers to disclose the defect and they did not. Despite the caveat emptor doctrine, the sellers were ordered to pay the buyers damages of $12,186.45 for repairing the drywall.

It's clear from the ruling in Gibb v. Sprague that there is a duty on a vendor to disclose a known but hidden defect which makes a home dangerous, and to disclose any known circumstances which are likely to result in danger.

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Bob Aaron is a Toronto real estate lawyer. He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818. Visit the column archives at http://aaron.ca/columns/toronto-star-index.htm for articles on this and other topics.

Guest Column - Bob Aaron - Health card acceptable for voting but not for mortgage

Oct 11, 2008

Why is an Ontario photo health card not a valid form of identification for purposes of a real estate transaction, but it's perfectly acceptable for the federal election next week?

Whenever clients sign mortgage documents with their real estate lawyers, virtually all lenders require the lawyer to confirm the client's identity by making a photocopy of the ID documents and signing a form certifying that the lawyer has personally examined those documents.

Most lenders even provide a list of eligible, and ineligible, documents. Lawyers can choose two documents from the list in column A (photo ID documents), or one document from column A and one from those in column B.

Eligible documents include a passport, citizenship card, credit card, driver's licence and identity cards from "well-known" employers.

Those mortgage lenders who provide lists of eligible documents uniformly exclude the Ontario health card, but never explain why it cannot be used.

In my practice, I have had a number of borrower clients who have no driver's licence, passport or photo ID other than the health card. This inevitably creates a problem complying with the bank's identification requirements, since the health card is unacceptable.

In light of the long-standing prohibition on using health cards, I was surprised when a brochure from Elections Canada arrived at the house recently advising voters that they must prove their identity and address before being allowed to vote next week.

The Ontario health card was listed right there on the Elections Canada form in the lists of acceptable identification documents. Thinking there must be some mistake, I resolved to find out why I cannot use a health card to identify myself when signing a mortgage, but it would be perfectly acceptable when voting for my Member of Parliament.

I had always thought that a health card was unacceptable since there were more of them in circulation than there are citizens of Ontario, but that may well be an urban (and suburban) legend.

After some research, I eventually discovered Section 34 of the Personal Health Information Protection Act, 2004 (online at www.e-laws.gov.on.ca).

The stated purpose of the legislation, among other things, is to establish rules to protect the confidentiality and privacy of personal health information.

In Section 34, the legislation says that a health information custodian (in other words, a health-care practitioner) or his or her agent shall not collect or use another person's health number except for the purposes of providing provincially-funded health resources to that other person.

Otherwise, it's against the law to require a person to produce his or her health card. Even if they produce it voluntarily, however, it's illegal for a lawyer to "collect or use" the health card number for the purposes of proving the client's identity in a real estate transaction.

So, on Election Day, it seems that a voter may identity him or herself to an election officer by voluntarily producing an Ontario health card as long as the official does not write down the number.

For Ontario residents without driver's licences or passports, it's clearly easier to vote than it is to sign mortgage documents.

Also on the issue of identification, new Law Society rules come into force at the end of this month requiring lawyers to verify client identity in every matter, not just real estate purchases and mortgages.

The rules have been made at the urging of the federal government to deter money laundering and the financing of terrorist activities.

The Law Society of Upper Canada has issued a 28-page "guideline" to assist lawyers in complying with the new rules.

Similar identification requirements are already in place for clients of real estate agents.

Bob Aaron is a Toronto real estate lawyer whose column appears Saturdays. He can be reached at bob@aaron.ca. Visit his website at aaron.ca.

Guest Column - Bob Aaron - Oil storage tank leak a cautionary tale

September 13, 2008

Oil storage tank leak a cautionary tale

A scary tale of an oil leak in an Ottawa-area home provides a valuable lesson for homeowners whose homes are heated by oil.

In early 2006, an exterior oil storage tank next to the residence released approximately 900 litres of fuel oil onto the ground.

The owner's insurance company called in Ottawa-based Canadian Disaster Restoration Group to respond to the environmental contamination.

Not only was the site of the house contaminated, but the leak posed significant immediate risk of contamination to neighbouring properties. The potential liability was a matter of great concern to the owner's insurer.

The lot size was 450 square metres and there were nearby neighbours in all directions. The property was near the top of a downward-sloping street of residential properties. The Ottawa River lies at the bottom of the hill.

A shallow aquifer beneath the property was comprised primarily of sand and so the potential for rapid flow of contamination in the flowing water was very high. The leak occurred in cold weather and the downhill flow of oil through the site was sure to accelerate as the spring temperatures began to rise over the weeks after the leak.

A speedy reaction to the leak was essential. Concentric Associates, a part of the disaster restoration team, analyzed the situation and decided that the owner's young family had to leave the property immediately for their own safety and to allow faster remediation of the damage.

From a practical viewpoint, everyone involved agreed that demolition of the house was the best option and the insurer purchased the house from the owner. This allowed the family to relocate to a new home without delay.

In March 2006, a demolition permit was obtained and the house was demolished. Eastern Building Restoration began remedial excavation the same day.

On the surface, the oil had spread out to cover an estimated 50 square metres or about 538 square feet. Underneath this area, a plume of fuel oil had leaked into the aquifer which was underneath and around the residence and all of it had to be removed.

Over the next two weeks, almost 2,000 metric tonnes (4.4 million pounds) of contaminated soil were removed.

By mid-April 2006, the site had been fully backfilled and a post-remedial groundwater sampling program was undertaken during the following months.

Eventually, the site was approved by the Ontario Ministry of the Environment and it was resold for construction of a new home.

Total cost for the remediation came to about $500,000 –plus the cost of buying the house.

Fortunately, the disaster recovery team kicked into high gear fast enough so that the neighbouring houses were not affected by the flow of oil underground.

The insurer's decision to purchase the property relieved the homeowners of a tremendous burden while allowing the restoration crew to get at the contamination quickly.

This protected the surrounding neighbourhood from contamination and the insurer from liability to the neighbours.

Had the house not been demolished, or if the cleanup hadn't occurred so quickly, the costs could have been exponentially higher.

The scary part of the whole tale is that the cause of the oil spill was due to a corroded oil tank. The hole in the tank was about the size of the tip of a ballpoint pen.

Jean-François Raymond is the marketing director of the Canadian Disaster Recovery Group. For homeowners with oil tanks – interior or exterior – he recommends checking oil tanks and lines yearly, or even more frequently, especially if they are old.

Strict requirements govern the use of residential oil tanks. Information is available from the Technical Standards and Safety Authority, www.tssa.org, or phone 1-877-682-8772 or 416-734-3300.

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Bob Aaron is a Toronto real estate lawyer. He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818. Visit the column archives at http://aaron.ca/columns/toronto-star-index.htm for articles on this and other topics.