Brian Madigan LL.B., Broker
BRMadigan@iSourceRealEstate.com

RE/MAX West Realty Inc.,
Brokerage
Independently owned and operated

96 Rexdale Blvd. 
Toronto, Ontario 


Phone: 416-745-2300
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Does the Agent Have to Disclose a Severance Condition?

May 9, 2016

Does the Agent Have to Disclose a Severance Condition?

 

This is a somewhat unique case. An owner severed their exiting lot into two parcels.

 

As a condition of the severance, the municipality imposed two conditions upon the building to be placed upon the lot under the Planning Act.

 

The conditions provided that the owner enter into an agreement with the municipality requiring that any dwelling to be constructed on the property be:

 

1)    set back from the shoreline at least 30 m. and

2)    be above a specified elevation.

 

The agreement was entered into and was registered on title.

 

The first question is whether or not the Seller who was personally quite knowledgeable about these two conditions was under any legal obligation to disclose them to a potential purchaser.

 

The Court answered “NO” and this decision was upheld by the Ontario Court of Appeal.

 

Here is a summary of the relevant portions of the Trial Judge's decision,

 

Mr. Justice Trainor concluded:

 

·        “Todd was an experienced real estate agency whose judgment and skill might be relied upon by persons such as the Buyers.

·        Moreover, he breached the rules of his real estate board in failing to make full disclosure.

·        However, the Buyers did not rely on his expertise and hence the real estate brokerage was not liable to the Buyers.

 

Evidence Concerning the Real Estate Agent and Brokerage

 

The Seller's husband is a retired real estate agent of many years' experience. The listing agreement relative to the sale to the Buyers does not refer to the 30 m. set-back although the listing on resale does. This was after the first deal which is the subject matter of this lawsuit fell through.

 

The Buyers were introduced to the property by an advertisement in the Burlington Post. They were shown the property by Mrs. Peth, the Seller's daughter, and were given the reference plan for the lot.

 

On June 26, 1981, Mr. Peth attended the Buyers' home. He advised them, in answer to a question, that the lot was a building lot.

 

He was then asked, "Are there any restrictions such as NEC [Niagara Escarpment Commission]?" (The reference to NEC was explained to the court by the Buyer, Dr. Haslhofer, who said he meant restrictions other than normal side yard and front yard set-backs.

 

He had encountered restrictions such as location of building, tree-cutting and others with respect to a contemplated land purchase in Collingwood.) Dr. Haslhofer did not expand on his meaning when asking the agent. The agent replied, "No. It is a long way from the Niagara escarpment."

 

Dr. Haslhofer said he relied on the agent and executed the offer.

 

The Buyers did not meet the Seller or her husband until the contract had been executed, nor did they advise the Seller, her husband or the agents of any specific building plans, or of their intention to locate their residence on the slope of the property.

 

It is equally clear that the Buyers were unaware of the 30 m. restriction on June 25, 1981, the day they signed the contract.

 

Proceedings Against the Real Estate Agent

 

The difficult issue left to be determined is the responsibility, if any, of the agent, for contribution and indemnity.

 

Mr. Brown, the expert called by the third party in te defense of the agent, said:

 

1)    it was not the practice in the Hamilton area to inquire of the vendor or to otherwise obtain information about restrictions or restrictive covenants unless specifically asked to do so by the purchaser.

 

2)    He said that it was not his practice when representing the vendor and the purchaser to search title or to have the purchaser see his solicitor before signing an offer.

 

3)    He said that when in this position of potential conflict he made the offer conditional on such matters as restrictions.

 

Contrary Expert Witness Evidence

 

The experts testifying on behalf of the Buyers said it was their practice to ascertain and advise on restrictions. They said this was a situation, because of the lot severance, where conditions would be likely.

 

They obtain the information:

 

1) by asking the vendor,

 

2) by contracting the proper municipal authority, or

 

3) by searching the title.

 

Neither Mr. Peth nor his wife asked the Seller about restrictions.

 

They took no steps to obtain any information about the property other than that contained in the listing. Mr. Peth told the purchasers the property was a residential lot and that it would be subject to certain restrictions as are all residential lots.

 

He said, he obtains information for purchasers if requested but prefers that they obtain the information themselves.

 

His practice is unacceptable in a situation of conflict. This is apparent when the terms of the agreement are considered together with the rules and regulations of the Metropolitan Hamilton Real Estate Board.

 

The rules govern multiple listings but in my view are all the more important in an exclusive listing situation.

 

If the rules had been followed in this case this lawsuit may have been avoided.

 

The applicable rule is the following:

 

R. (5) ... Such listing must give all data available and as full and accurate a description of the property as possible, with any additional information on the property to be forwarded as soon as procurable.

 

The code of ethics for the third party and other members of the board reads:

 

ARTICLE 3.

 

The Member shall ascertain and disclose all pertinent facts concerning every property for which he accepts the agency so that he may fulfill his obligation to avoid error, exaggeration, misrepresentation or concealment of pertinent facts.

 

Mr. Peth was the Seller's agent. He had an exclusive listing to sell the property. He was experienced in real estate matters, and he was closely related to the plaintiff.

 

He was in a position where his judgment, skill or ability to make careful inquiry might reasonably be relied on by others, including these defendants: see Hedley Byrne & Co., Ltd. v. Heller & Partners, Ltd., [1963] 2 All E.R. 575.

 

The crucial question remaining is whether the defendants signed the offer to purchase because Mr. Peth said there were no restrictions such as NEC. If they did, then the agents are liable.

 

I have concluded that they did not for these reasons.

 

1)    Firstly, the Buyers' solicitor's letters speak from the dates they were written. They are unaffected by time, preparation for trial and the pressures of trial.

 

2)    The letters reveal that from the date of the agreement of purchase and sale, June 25, 1981, the Buyers failed to requisition removal of the 30 m. set-back restriction until September 16, 1981, two weeks prior to closing. The letters from the plaintiff 's solicitor ask for evidence that a building can be built on the lot. They do not refer to construction on the slope, the matter expressed to be of paramount importance in the defendants' evidence.

 

3)    The defendants knew of the set-back, or their solicitor did, by at least July 21, 1981, and no one thought to complain to the agents prior to closing.

 

4)    As early as the letter of July 21, 1981, the defendants appear to be as concerned with a 20-ft. front yard building set-back as they are of the 30 m. restriction. At trial, the defendants testified that the front yard restriction was normal. It would not have prevented closing. That is not the position Dr. Haslhofer took at the time of his discovery. The requisition on the 20-ft. restriction was not waived at, or prior to, the date of closing.

 

I conclude, from the words and actions of the defendants and their solicitors, that they did not rely on the agent within the doctrine in Hedley-Byrne, supra.

 

The third party proceedings are therefore dismissed.

 

I have decided not to award interest or costs to the plaintiff or costs to the third party.

 

 

The Seller's husband did the negotiating.

 

In his position as a retired real estate agent he had to know that he was withholding information, at the time of the listing,  that might be of significance to a prospective purchaser.

 

The agent, Mr. Peth, knew that the defendants were asking for information about the property of an exceptional or unusual nature.

 

 He should not have answered in the way that he did, since on his own evidence he had little information, and had not done any research. Mr. Peth was aware that clauses in the offer to purchase such as the one dealing with restrictive covenants, are not designed to protect the purchaser. In circumstances of potential conflict an agent has a duty of a fiduciary nature, and should be made to bear some responsibility for breach of it.”

 

COMMENT

 

The Buyer refused to close and was sued by the Seller. Ultimately, the Seller was successful in the lawsuit. There was no obligation placed upon the Seller to disclose this information.

 

The Buyer took third party proceedings against the agent. In this case, we have one agent acting for both sides in this transaction.

 

The Court concluded that the agent made mistakes and breached their duties to the Buyer. The problem was one of reliance, in fact, upon the agent.

 

This case was decided in 1983 and went to the Ontario Court of Appeal in 1986. I think it would be doubtful if a Trial Judge woud reach the same conclusion in 2016, some 30 years later.

 

Professional standards and corresponding professional negligence and liability have increased. Numerous discipline cases would illustrate that the efforts of the agents were lax and had they acted appropriately, the Buyer would have known the true facts in a timely manner and made an informed decision.

 

Old Law

 

Previously: “The Member shall ascertain and disclose all pertinent facts concerning every property for which he accepts the agency so that he may fulfill his obligation to avoid error, exaggeration, misrepresentation or concealment of pertinent facts.”

 

New Law

 

Currently: “A broker or salesperson who has a client in respect of the acquisition or disposition of a particular interest in real estate shall take reasonable steps to determine the material facts relating to the acquisition or disposition and, at the earliest practicable opportunity, shall disclose the material facts to the client.”

 

Conclusion

 

Now, the law would require the agent to perform a positive review. Investigate, determine and verify the material facts and THEN, disclose those facts.

 

Earlier, the role was less onerous. It was less clear and less specific. Hence, the result here, where the agent might be criticized but is not punished by way of a Judicial decision.

 

Interested in the case, it went to the Ontario Court of Appeal on January 9, 1986, see: Todd v. Haslhofer.

 

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com


Tagged with: severance condition agent duty obligation disclosure ontario law
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Brian Madigan LL.B. Broker

RE/MAX West Realty Inc. Brokerage

Independently owned and operated

96 Rexdale Blvd. , Toronto Ontario,

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