Court rules real estate agent isn’t responsible for home inspection

Nov 24, 2012 | 2012 Toronto Star Columns



Bob Aaron bob@aaron.ca

An Ontario real estate agent has escaped responsibility for
failing to review the results of a professional home inspection with his purchaser client, according to a decision of the Ontario Court of Appeal earlier this year.

In a 2011 case, which sent shock waves through the real
estate community, a real estate agent was ruled 25 per cent responsible for the
buyer’s damages for taking a “hands-off approach” with respect to the home
inspection, and because he failed to warn his client about the implications of
the home inspector’s report.

It all began in 2006, when Glenda Halliwell wanted to buy a
home on Dufferin St. in Toronto. She made it clear to her real estate agent,
Joel Lazarus, and to the home inspector, that she was allergic to mould and
wanted a dry house.

Lazarus ensured that a condition was inserted in the
purchase offer allowing Halliwell to terminate the transaction if she was not
satisfied with the report from the home inspector.

On the recommendation of Lazarus, Halliwell hired Brian
Edwards to conduct a home inspection. Except for the furnace, which the seller
replaced before closing, no other serious problems were noted during the home
inspection, and there was no evidence of water penetration through the
foundations.

Unfortunately, two months after closing, there were clear
indications of moisture, mould, mildew, rot, rust and drywall deterioration in
the home. Halliwell sued her agent, the broker, the seller and the home
inspector. The parties agreed on $90,000 damages prior to going to court, but
not on who should pay them.

Following a 13-day trial, the judge found the home inspector
liable for 50 per cent of the damages, and the purchaser for 25 per cent for
failing to read the inspection report. But the part of the decision which upset
many real estate professionals was the finding that the agent was liable for 25
per cent of the damages.

Justice Margaret Eberhard found that Lazarus took a
“hands-off approach” with respect to the home inspection report. “Had he read
the report he . . . might well have concluded that the parging and driveway
issue raised concerns.”

The judge found that the agent induced the purchaser to rely
on the home inspection, and then “washed his hands of all responsibility to his
client. . . . He failed to advise the purchaser of the use to be made of the
report . . . (and) fell below the standard of care by failing to review the
report with his client before waiving the home inspection condition.”

Halliwell, the agent and the broker all appealed. Earlier
this year, a three-judge panel of the Ontario Court of Appeal reversed
Eberhard’s findings of negligence against the real estate agent and the
purchaser, and determined the home inspector was responsible for all of the
damages.

“Turning to the agent’s liability,” the appeal court wrote,
“we agree with the agent’s submission that the trial judge erred in finding the
agent liable on a failure to read the inspection report, review it with the
(purchaser), and bring to the (purchaser’s) attention the potential for
moisture problems arising from the findings in the report.”

This is not to say that some agent in the future would not
be held responsible for failing to warn a buyer about a home inspection report.
In the Halliwell case, the trial judge did not hear any evidence concerning the
standard of care expected of an agent in these circumstances.

As a result, the appeal decision in the case presents both
good and bad news for agents and their clients. While the agent in the case
escaped liability for the moisture damages to his client’s property, a future
court in a different case could decide differently on the agent’s
responsibility.

Prudent agents will still review a home inspector’s report
with their clients, but in the end it seems to me that the obligation, and the
risk, all fall on the shoulders of the home inspector.

See Title Page column on trial decision at

http://www.aaron.ca/columns/2011-06-11.htm

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Contact Bob Aaron

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.

Aaron & Aaron specialize in Real Estate Law, specifically Sale of Rental, Condominium, Residential, Rural Recreation, Offer to Lease, Commercial, and New Construction