Lawyer’s Corner: Seller Property Disclosure Statements

Have listing agents requested that you fill out a Seller Property Disclosure Statement (SPDS) when selling your home? Read the article below written by Lubos K. Pesta, Q.C, Walsh Wilkins Creighton LLP and see why it’s most likely not in your best interests to do so.

Seller Property Disclosure Statements

Approximately eight years ago, AREA eliminated the Seller Property Disclosure Statement (SPDS) from its inventory of standard forms and recommended that its use be discontinued. There were several reasonsfor this decision.

First, the SPDS required sellers to disclose information beyond what they were obligated to disclose under the Common Law, and in most cases sellers were not made aware of that fact.

Secondly, the moment that industry members handled the SPDS and conveyed it to the buyer, they became obligated by the Common Law duties imposed on agents to verify the accuracy of the responses. Unfortunately, disclaimer clauses contained within the SPDS purporting to release industry members from liability have traditionally been ineffective when challenged in court.

Finally, the form asked questions which were not necessarily relevant and failed to address issues that may have been important to many buyers. In place of the SPDS, the material latent defect disclosure questions were expanded in the standard form Residential Listing Contract to more completely reflect the disclosure requirements under the Common Law.

Since then, some industry members have questioned the wisdom of eliminating the SPDS in Alberta and have continued to photocopy and re-use old forms. In some instances conditions were inserted in purchase contracts requiring sellers to provide the SPDS. In other cases listing agents automatically requested sellers to complete the SPDS at the time of listing and then gratuitously provided it to prospective buyers.

AREA’s decision to eliminate the SPDS was recently vindicated by the Ontario Court of Appeal in the case of Krawchuk v. Scherbak, 2011 ONCA 352. The brief facts of this case are as follows:

In listing a property for sale, a real estate agent assisted the sellers in completing the OREA standard form Seller Property Information Sheet (SPIS). Among other disclaimers the SPIS indicated that the information was being provided for “information purposes only”, the “buyers must still make their own enquiries” and “the broker/sales representative shall not be held responsible for the accuracy of any information contained herein”.

In completing the SPIS form in this case, the sellers significantly understated problems they experienced with the settling of the foundation and, in addition, wrongly advised that they had no plumbing problems when, in fact, they had experienced repeated sewer backups. The sales representative subsequently became the agent of the buyer as well. In relying on the SPIS, the buyer entered into an unconditional purchase contract.

Shortly after the completion of the purchase the buyer discovered significant foundation and plumbing problems, which required extensive repair work including the removal of the house from its foundation, excavation of the cement floor, replacement of the subsoil, installation of new footings, foundation and cement floor and the replacement of the house on its new foundation. The total repair costs were close to $200,000. Not surprisingly the buyer sued for the recovery of all costs, naming the seller as well as the
agent and brokerage as co-defendants.

At trial, the buyer initially succeeded only against the seller on the basis of the misrepresentations in the SPIS. On appeal, the Ontario Court of Appeal additionally held the industry member (and her brokerage) jointly and severally liable for the damages with the seller on the basis of negligence in:

1. failing to verify the accuracy of the information provided by the sellers in the SPIS; and
2. failing to recommend, in the strongest terms, that the buyer get an independent inspection before submitting an offer or that the offer be made conditional on a satisfactory inspection.

None of the disclaimers in the standard SPIS were deemed to be effective to protect either the seller or the agent/brokerage from liability. The court further issued a warning respecting “the risks associated with the (routine) use of the SPIS and similar documents used in other provinces” (paragraph 166) and then quoted from a prior court decision as follows:

“…the use of SPIS forms seems to present a ripe ground for litigation. ….The wisdom of maintaining in use a form fraught with such inherent difficulties … should be addressed by lawyers and real estate agents alike.”

In light of this decision, industry members continuing to use the obsolete SPDS in Alberta truly do so at their own peril.

Lubos K. Pesta, Q.C.
Walsh Wilkins Creighton LLP

Phone: 403.267.8432 Fax: 403.264.9400

The comments expressed in this article are for information purposes only and serve to highlight general principles. Each situation is different and you should seek legal counsel before pursuing any particular course of action. These articles do not create a client/lawyer relationship and do not constitute legal advice. The opinions expressed herein are those of the author and not of AREA

Copyright Alberta Real Estate Association. Reprinted with permission. AREA makes no guarantee as to the accuracy or completeness of this information.

2 responses to “Lawyer’s Corner: Seller Property Disclosure Statements

  1. Sandra Neufekd

    Do sellers have to disclose previous flooding an damages?

  2. kurt Bollinger

    does a home bulider have to disclose to the purchaser that a high pressure gas line and control facility project is being built directly behind a lot that is for sale. The builder was notified of the project by ATCO gas before the purchase agreement was signed.

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