416-364-9366 bob@aaron.ca

Sellers statement often results in expensive court proceedings

Aug 15, 2009 | 2009 Toronto Star Columns

By Bob Aaron
Toronto Star contributing columnist

Back in the spring of 2004, Timothy and Cherese Scherbak signed a listing agreement to sell their property on Boland Ave. in Sudbury, using the services of Wendy Weddell and Re/Max Sudbury Inc. The Sellers Property Information Statement (SPIS), which they signed at the same time, resulted in years of litigation, hundreds of thousands of dollars in legal fees, and damages amounting to twice the value of the house.

Following an open house, Zoriana Krawchuk signed an agreement to purchase the house from the Scherbaks. The offer was not conditional on financing or home inspection, and came in at $10,100 over the $100,000 asking price.

Shortly after closing, Krawchuk discovered that the entire north foundation wall and the northern portions of the east and west foundation walls had settled and were continuing to sink into the ground below. The settling resulted in the failure of proper support for the floor joists and building above.

The city of Sudbury issued a work order requiring the problems to be rectified.

Correcting the foundation problem required lifting the home from its foundations, followed by excavation, removal and replacement of the cement basement floor, foundations and subsoil, and placing the house back on the new foundations.

Moving the home caused significant cracking of the interior finish in many areas, which required further repairs.

Fortunately, Krawchuk had purchased title insurance on the closing of her property, and the title insurer reimbursed her more than $105,000.

Krawchuk was still in the red on the deal. She estimated her total damages to be $191,414.94 and sued the sellers, the agent and Re/Max.

In the lawsuit, she claimed that the sellers were liable to her for breach of contract and misrepresentation. She argued that the problems with the foundation were hidden defects, which made the house uninhabitable, and that the Scherbaks had deliberately camouflaged them by attempting to level out the living and dining room floors back in 1995.

A significant component of the Krawchuk claim was based on the SPIS completed by the sellers. The SPIS is a controversial two-page form in widespread use throughout Ontario for residential transactions.

Its stated purpose is to protect sellers by disclosing correct information about the property to buyers.

On the SPIS form signed by the Scherbaks, the question “Are you aware of any structural problems?” was answered: “NW corner settled to the best of our knowledge the house has settled. No further problems in 17 years.”

After an unusually long 12-day trial in June, Justice Robbie Gordon found that this statement was intended to inform prospective purchasers, not to mislead them.

Nevertheless, he accepted that Krawchuk relied on the truth and accuracy of the Scherbaks’ statement in the SPIS, and that she would not have made the offer if she had known of the structural problems which existed. In so doing, the judge wrote that Krawchuk suffered damages by relying on the SPIS, and that the Scherbaks were responsible for negligent misrepresentation.

Krawchuk’s claims against Weddell and Re/Max were dismissed.

When it came to assessing damages, the judge was critical of Krawchuk for incurring damages of more than $190,000 on a house that she bought for $110,100. The judge ruled that she should have sold the house for fair market value and sued for the difference.

Despite this, and even though Krawchuk had recovered more than $105,000 from her title insurer, on July 30, he awarded her additional damages of more than $110,700 against the Scherbaks, plus 4 1/2 years of interest on that sum, and court costs to be agreed upon, or decided later by the judge.

This litigation is only the latest in a series of court cases resulting from the use of the Sellers Property Information Statement. The form is badly drafted, difficult to interpret, and impossible to fill out properly without legal advice. Too often it results in very expensive court proceedings. It is a gold mine for litigation lawyers.

Sellers who sign the form, and agents who recommend it, are asking for trouble.


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

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