Real Estate

Real Estate (11)

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Haunted House Litigation

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I've written in the past about the difficulty of a property buyer in Ontario suing over a house where an undisclosed murder had taken place.  Based on a decision from the Court of Appeal today, that difficulty extends to haunted houses.

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Disclosure in a Dual Agency Real Estate Deal

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Dual agency situations for real estate agents can be quite an attractive proposition for them.  Instead of having to split a 5% commission with another agent for the sale of a house, an agent can keep all of that money for themselves if they can find both a buyer or a seller. When this happens, the real estate agent has a number of obligations that arise, to ensure that he or she is treating both clients appropriately.  The case of Partners Realty Ltd. v. Morrow, 2014 ONSC 124 is a good example of a case where the agent failed to meet all of her obligations in a dual agency situation, so she lost out on her commission.

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The Trump Tower Legal Saga

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The ongoing saga of the Trump Tower in Toronto has had its ups and downs for developer, Talon International Development Inc.  For those that aren't familiar, the Trump Tower (along with a few other recent developments) are somewhat novel additions to the condo market in Toronto.  The short version is that investors can buy a condo/hotel unit, where the investor pays a condo fee to cover the costs of the unit, while sharing in any money that is made by renting the unit out.  Unfortunately, a number of investors have become disillusioned now that the Trump Tower has opened, as they're faced with higher expenses and higher vacancy rates than they were expecting.  Which has led to a number of court cases, including one (discussed below) where a decision was reached last week.

 

I've talked before about what happens to real estate deposits when a deal doesn't close.  Basically, if it's the buyer's reason the deal doesn't close, then the seller gets to keep it unless it can be shown that this would be an unconscionable result.  In the past few weeks a few cases have come out showing the practical realities of this situation, with a couple of potential buyers losing some substantial deposts.

 

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On Murder (and Suicide) Houses

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Apparently a couple in Bowmanville are suing over the purchase of a house which turned out to be the location of a 1996 double homicide (the Toronto Star article is here).  And since nobody asked me, here are my comments about this type of lawsuit ... the legal side of things, at least.  Short answer ... I don't think it's not an impossible case for them to win, but it looks like a tough one.

 

In some real estate transactions, the seller will complete a form called a "Seller Property Information Statement" (an "SPIS" for short) and provide it to the buyer.  This form is a questionairre type document, where the seller indicates whether there have been certain types of problems with the property, such as water problems or flooding.  As the seller in Costa v. Wimalasekera, 2012 ONSC 6056 found, an answer on the SPIS can result in being found liable for misrepresentation.  But is it the SPIS that is to blame?


The facts of the case are simple.  The seller checked the box on the SPIS saying that the property is not subject to flooding.  Once the buyer moved in, they found that the back yard would end up covered in a few inches of water whenever it rained, which would stick around for a few days.  The buyer sued the seller in Small Claims Court, and the trial judge awarded $25,000 for the misrepresentation.  The seller appealed, and the appeal ended up before Justice van Rensburg.

It appears that Justice van Rensburg had no problem throwing out the appeal.  In short, Justice van Rensburg confirmed that the SPIS could result in liability for any "latent" defects that are not otherwise obvious when inspecting the property:

[27] A “latent” defect is one that is not discoverable upon reasonable inspection. The SPIS specifically cautioned the buyers to conduct their own inspection. If an inspection would reasonably have disclosed the flooding problem, it would be a patent defect, in respect of which the buyers would have had only themselves to blame if they had not identified the problem.

 Since there had been no rain when the buyers visited the home, the problem was not apparent when the home was inspected.  This made it a latent defect, which the seller is liable for not disclosing.

The fact that the seller explicitly answered in the SPIS that the property was not subject to flooding makes this a pretty clear case.  Many people will therefore point to the SPIS, and say that buyers should avoid signing them if they want to avoid potential liability.  This is probably good advice (with the caveat that if the buyer asks for one, and the seller refuses, it will probably raise a big red flag for the buyer), although it is not always that easy.

Without the SPIS, many cases would likely be decided the same way.  That is because the law isn't quite as strict as "buyer beware" when it comes to house purchases.  Although oversimplified, the law generally looks at problems arising after home purchases as follows:

  • If the problem is a "patent" defect (something like a broken window, or even an obviously waterlogged basement), then it is buyer beware.
  • If the problem is a "latent" defect that the seller actively hid (covering up a cracked basement foundation with drywall, for example), then the seller will typically be on the hook.
  • If the problem is "latent", but the seller did not know anything about it, then the seller is usually ok, since the seller had no more knowledge about it than the buyer.

Obviously there are many grey areas in here: whether a defect is "patent" or "latent" will depend on the facts of each case, and will typically not change regardless of whether there is an SPIS.  Where the SPIS really changes things is in the middle ground: latent defects where the question is whether the defect was hidden by the seller.  If the seller discloses it in the SPIS, and the buyer still goes ahead with the transaction, the seller is protected from a claim that they hid the defect (at least in theory).  If the seller doesn't disclose it in the SPIS, then the buyer has a much easier time showing that it was hidden by the seller (since they misrepresented its existence in the SPIS).

So the bottom line is that the SPIS makes the transaction a litter fairer.  It forces the seller to be explicit about whether he or she knows of certain types of defects.  Although to be blunt, fairer is not usually going to be in the best interests of a seller, so a seller will likely want to avoid signing an SPIS, if they can.


A side point about this case: I sometimes feel like the most frequent misconception about the law is that it's all about winning cases on "technicalities".  While a case sometimes turns on a "technicality", like a limitation period or statutory notice requirement, the law is usually flexible enough that judges are encouraged to take a fairly pragmatic and realistic view.

One of the seller's arguments is a good example of a technical argument that the court disregarded for a more common sense position.  Here, the seller argued that technically the problem with the backyard was "ponding" rather than "flooding".  The seller even called a witness from the Credit Valley Conservation Authority to talk about the technical difference between the two words.  Both the trial judge and the appeal judge threw out this argument: it's not whether you can find some technical meaning of the word that helps your case, but what a layman would reasonably understand the SPIS to say.  And a few inches of water in your backyard would be seen by most people as "flooding".

 

 

 

 

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The Abridged Law of Flooding

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As Hurricane Sandy is downgraded from Frankenstorm (or to be more accurate from a literary perspective, Frankenstorm's monster) to dreary landlocked storm, coastal cities start their cleanup, and the media moves on to speculating about the cleanup cost.1  Storm cleanup inevitably leads to swarms of insurance adjusters to deal with the various legitimate and less-legitimate insurance claims.  Which also inevitably leads to lawyers fighting about who is responsible for various costs. Last in the chain of inevitabilities are people like me, who feel the need to blog about the issues that might arise as the torrents of lawyers move in to deal with flood damage claims.  

 

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The Broken Landlord Tenant Appeal System

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Being a residential landlord these days in Ontario can be a risky proposition.  Bad tenants who know their way to take advantage of the Residential Tenancies Act, the Landlord Tenant Board and the court system can make any eviction a long and gruelling process.  A new decision from Justice Matlow in D’Amico v. Hitti, 2012 ONSC 4467 shows that judges understand the pain of landlords, but have little power to help absent changes to the relevant laws.

 

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The Legalities of Bidding Wars

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Anyone in the real estate market in Toronto knows that when the market is hot, good properties end up in bidding wars.  Many realtors acting for sellers actively promote bidding wars as a way of pushing up the price, by deliberately listing a property at below market value, and "holding" offers until a certain day to encourage mutiple buyers to make offers at the same time.  The result is that many potential buyers get frustrated and angry, as they see properties they love sell for hundreds of thousands more than the listing price.  The process may be frustrating, but where is the line between legal (but frustrating) tactics and illegal tactics?

These days it seems like you cannot open a newspaper (or, more likely, go to a news website) without seeing an article about the craziness of the Toronto and Vancouver real estate markets.  Prices are rising, and depending on who you ask, there may or may not be a housing crash on the horizon.  In a volatile housing market, the market can change drastically between signing an Agreement of Purchase and Sale, and actually closing your deal.  If something happens to the deal in the meantime, what happens to the deposit?  This an area that many people seem to be confused about - partly because the answer is not necessarily clear cut, as I discuss below.