SPIS – Protection for Homebuyers. Barbara Sukkau, president of OREA, advises that one of the best ways homebuyers can protect themselves is to ask for a Seller Property Information Statement (SPIS) from the homeowners. “An information statement like the SPIS will tell potential buyers what the known issues are in the house—both those you can easily see and those that are hidden behind walls or only appear after something like a heavy rain or snowstorm,” says Sukkau.
While providing a SPIS for a house is not legally required by a seller, it is considered a best practice by OREA, and Realtors will encourage sellers to include one with the house’s listing. OREA also instructs Realtors that disclosure is imperative as prescribed in their Codes of Ethics. “We recommend listing everything that a buyer might be concerned about in the home because, as Realtors, we are trained to work within the rules of real estate law and are familiar with recent court judgements against sellers who failed to inform a buyer about the home’s history,” says Sukkau.
An information document like the SPIS is not a warranty, but it can help protect the buyer or the seller if the buyer discovers an issue with the house after the sale and wants money to fix the problem or takes the previous owner to court. The SPIS shows the seller acted in good faith and told the buyer about all the known issues.
In Ontario, caveat emptor or “buyer beware” applies to real estate law. A homeowner selling his or her property may believe that it prevents litigation if the buyer later discovers a problem with the property; however, this is not actually what caveat emptor means. “Buyer beware” means that the buyer cannot after the sale is closed ask the seller to pay for repairing something on the property if the problem was visible at the time of purchase or could be discovered through a home inspection. For example, if the buyer sees that a window is broken in the home, he or she cannot later ask for money to repair it, but the buyer could ask their Realtor to include a clause in the agreement of purchase and sale to fix the window before the sale is finalized.
On the other hand, the seller is legally obligated to inform the buyer of any problems that would not be discovered during a home inspection (e.g. a basement that floods after a heavy rainfall) as this is a latent, or hidden, defect. If the seller did not tell the buyer about the problem before the sale is finalized, the buyer could take the previous owner to court for failure to disclose the dangers if it can be proven that the sellers knew about the issue when the home was sold.
“Some homeowners may be reluctant to tell a potential buyer that the basement leaks or if there is old wiring, but providing this information can make your house more attractive to buyers than sellers who do not provide a list. People interested in your home will know what to expect and will not have to worry about having unhappy surprises after they move in,” says Sukkau.
The use of Disclosure Statements is mandatory in some places, but in Ontario, and elsewhere in Canada, they are voluntary although “strongly recommended” by real estate agents. At theThunder Bay Real Estate Board Level, the SPIS, which is published by the Ontario Real Estate Association (OREA), is mandatory. If the statement is not submitted to the board within 48 hours of listing a house, the Board will pull the listing from MLS until it is submitted. The SPIS can be crossed out and shown “As Is”, but must be signed by the seller.
The questions in the SPIS may require complex answers and many lay people may not understand the questions. It is arguable the SPIS asks sellers to disclose more than they are required to do by the law. A problem with the forms for Real Estate Agents is that if the seller gets sued, then the agent may be joined in the action for their role in using/preparing the forms
“Real estate agents are not lawyers and should not be expected to provide legal advice. The practical reality, however, is that many individuals in real estate transactions likely rely on their real estate agent for legal advice.” Lyle v. Burdess, YK, 2008”.
The vast majority of residential real estate transactions close as scheduled, without problems or disputes. Some lawyers argue that the chances of any given real estate deal resulting in litigation involving the buyers, sellers and real estate agents increase when the agents insist that the sellers complete a SPIS. On the other hand, many experienced Agents argue that the use of SPIS has eliminated much litigation, and creates certainty for the information given to the buyer.
The object of this paper is to clarify the use of the SPIS and explain how the courts interpret the SPIS.
WHAT MUST A VENDOR DISCLOSE?
Before there ever was an SPIS, the Doctrine of Caveat Emptor (“Buyer Beware”) applied. Absent fraud, mistake or misrepresentation, a purchaser would take an existing property as he found it, whether it was decrepit, bug-infested or otherwise uninhabitable, unless he/she protected himself by contract terms.
The current law is that a vendor is not under a duty to disclose patent defects of quality; however they have an obligation disclose latent defects which render the property unfit for habitation or defects which render the property dangerous or likely to be dangerous. There is no duty to disclose defects which affect the value (only) of the lands. There is an obligation to disclose habitation or dangerous deficiencies discovered after the Agreement is signed but before closing. Nonetheless, vendors are not liable if they have no knowledge of the latent defect.
From a consumer protection standpoint a move away from the harshness of caveat emptor to a full disclosure model is defensible. Many agents argue that by reducing the representations to writing there is less likelihood that the answers will be misinterpreted. As several agents have noted – if the Vendors won’t complete the Disclosure Statement, we wonder what they are trying to hide?
CRITICISMS OF USING AN SPIS
• Disclosure Statements require Vendors to disclose more information than a Vendor would normally have to disclose.
• The average layperson probably doesn’t understand many of the questions let alone know the correct answers.
• They may be seen as an attempt to protect the real estate agents.
• They offer more protection to the vendor, than the purchaser.
• It does not directly disclose the actual condition of the property. It requires the vendor to say no more than that he or she is not aware of problems.
• Places buyers in an advantageous bargaining position being armed as they are with a list of all known defects, patent and latent.
REVIEWING THE SPIS
The following are some of the sections or paragraphs from the SPIS Form 220. The bullet points after them are commentary on the same.
“ANSWERS MUST BE COMPLETE AND ACCURATE This statement is designed in part to protect Sellers by establishing that correct information concerning the property is being provided to buyers. All of the information contained herein is provided by the Sellers to the broker/sales representative. Any person who is in receipt of and utilizes this Statement acknowledges and agrees that the information is being provided for information purposes only and is not a warranty as to the matters recited hereinafter even if attached to an Agreement of Purchase and Sale. The broker/sales representative shall not be held responsible for the accuracy of any information contained herein.”
• A CRITICISM OF SPIS FORMS MAY BE MORE FOR THE PROTECTION OF THE AGENT – IS THIS LIKELY TO PROTECT YOU IF THEY ASK YOU HOW TO FILL IN THE FORM, AND THE ADVICE IS WRONG!
• THE OTHER SIDE OF THIS CRITICISM IS THE FACT THAT:
o (a) nobody knows the property (and especially the latent defects) better than the owner/vendor;
o (b) owners/vendors sometimes hide latent defects from their agents; and
o (c) if the roof leaks or the well goes dry the broker and the agent often get sued along with the vendors – for
“discovery” if nothing else.
“BUYERS MUST STILL MAKE THEIR OWN ENQUIRIES Buyers must still make their own enquiries notwithstanding the information contained on this statement. Each question and answer must be considered and where necessary, keeping in mind that the Sellers’ knowledge of the property may be incomplete, additional information can be requested from the Sellers or from an independent source such as the municipality. Buyers can hire an independent inspector to examine the property to determine whether defects exist and to provide an estimate of the cost of repairing problems that have been identified. This statement does not provide information on psychological stigmas that may be associated with a property.”
• THIS IS TO TRY AND SHOW THE BUYER KNEW THEY MUST DO THEIR OWN INVESTIGATION.
“General:” Section
• When answering the questions, they must be filled out by the seller (not the agent). Agents must ensure that the seller initials every box, as this will prevent agents from being accused of incorrectly filling out the SPIS on behalf of the seller, and then having the seller sign them, and the agent later being held liable in Court.
“2) Does any other party have an ownership, spousal or other interest in the property?”
• MANY PEOPLE DON’T REALIZE THAT A SPOUSE CAN HAVE A POSSESSORY INTEREST EVEN THOUGH THEY ARE NOT ON TITLE
“5) Are there any encroachments, registered easements, or rights of way?”
• TO DISCOVER ANY ENCROACHMENTS, A SURVEY OF THE PROPERTY MIGHT HAVE TO BE DONE. MANY OWNERS WOULD NOT KNOW ABOUT RIGHTS OF WAY, AS THESE COULD BE SUCH THINGS AS AN UNREGISTERED EASEMENT (FOR EXAMPLE, HYDRO MAY HAVE AN UNREGISTERED EASEMENT FOR OVERHEAD POWER LINES)
“8) What is the zoning on the subject property?”
• TO KNOW THIS ANSWER, THE OWNER MAY NEED TO SEE THE ZONING MAP FOR THE CITY
“9) Is it legal non-conforming (if it does not comply with zoning)?”
• MOST PEOPLE DO NOT KNOW WHAT THIS MEANS, LET ALONE THE ANSWER.
“11) Are there any restrictive covenants that run with the land?”
• MOST SELLERS DON’T KNOW.
“12) Are there any drainage restrictions?”
• THE SUBDIVISION AGREEMENT WITH THE CITY RESTRICTS CHANGES IN GRADE.
“13) Are there any local levies or unusual taxes being charged at the present time or contemplated?”
• THIS IS AN EXAMPLE OF HOW VENDORS HAVE TO DISCLOSE MORE THAN THEY WOULD NORMALLY HAVE TO DISCLOSE
“16) Is the property connected to municipal water and sewer?”
• IF NOT, FORM 222 MUST BE COMPLETED.
The following are the relevant paragraphs from Form 222:
Form 222:
1. (c) are you aware of any problem re: quantity of water?”
• CURRENT ACTUAL KNOWLEDGE – MUST YOU DISCLOSE PROBLEMS IN PRIOR YEARS.
“(d) are you aware of any problems re: quality of water?”
• IN THE PAST WERE THERE WATER SAMPLES THAT FAILED?
“21) Are there any past or pending claims under the Ontario New Warranty Program?”
• IS THIS JUST WHILE THE SELLER OWNED THE PROPERTY?
Form 220, Continued:
ENVIRONMENTAL
“3) Is the property subject to flooding?”
• DOES ONE FLOOD MEAN ITS S.T. FLOODING? DOES ‘PROPERTY’ MEAN THE WHOLE PROPERTY OR JUST THE HOUSE?
“4) Is the property under the jurisdiction of any Conservation Authority or Commission?”
• THIS IS ANOTHER EXAMPLE OF HOW VENDORS HAVE TO DISCLOSE MORE THAN THEY WOULD HAVE HAD TO DISCLOSE BEFORE THESE SHEETS WERE MANDATORY. DOES THE SELLER HAVE THIS KNOWLEDGE?
IMPROVEMENTS AND STRUCTURAL:
“7) Are you aware of any moisture and/or water problems?”
• DOES “ANY” MEAN YOU HAVE TO DISCLOSE A LEAK THAT WAS FIXED? I.E. ROOF? BASEMENT?
“12) Is there any lead, or galvanized metal plumbing on the property?”
• IF THE SELLER DIDN’T BUILD, HOW DO THEY KNOW WHAT PLUMBING THERE IS.
Bottom of Page 2 of Form 222
“THE SELLERS STATE THAT THE ABOVE INFORMATION IS TRUE, BASED ON THEIR CURRENT ACTUAL KNOWLEDGE AS OF THE DATE BELOW. ANY IMPORTANT CHANGES TO THIS INFORMATION KNOWN TO THE SELLERS WILL BE DISCLOSED BY THE SELLERS PRIOR TO CLOSING. SELLERS ARE RESPONSIBLE FOR THE ACCURACY OF ALL ANSWERS. SELLERS FURTHER AGREE TO INDEMNIFY AND HOLD THE BROKER HARMLESS FROM ANY LIABILITY INCURRED AS A RESULT OF ANY BUYER RELYING ON THIS INFORMATION. THE SELLERS HEREBY AUTHORIZE THAT A COPY OF THIS SELLER PROPERTY INFORMATION STATEMENT BE DELIVERED BY THEIR AGENT OR REPRESENTATIVE TO PROSPECTIVE BUYERS OR THEIR AGENTS OR REPRESENTATIVES. THE SELLERS HEREBY ACKNOWLEGE RECEIPT OF A TRUE COPY OF THIS STATEMENT.”
• CURRENT ACTUAL KNOWLEDGE – ATTEMPT TO LIMIT NEED TO MAKE INQUIRIES BY SELLER;
• IMPORTANT THAT YOU LET THE SELLERS KNOW THAT IF SOMETHING COMES UP AFTER THE AGREEMENT OF PURCHASE AND SALE, THAT THEY HAVE TO DISCLOSE PRIOR TO CLOSING – IN WRITING PREFERABLE
• THIS IS AN ATTEMPT TO PROTECT AGENTS – “INDEMNITY”
RELEVANT CLAUSES OF AGREEMENT OF PURCHASE AND SALE
“13. INSPECTION: Buyer acknowledges having had the opportunity to inspect
the property and understands that upon acceptance of this Offer there shall be a binding agreement of purchase and sale between Buyer and Seller. The Buyer acknowledges having the opportunity to include a requirement for a property inspection report in this Agreement and agrees that except as may be specifically provided for in this Agreement, the Buyer will not be obtaining a property inspection or property inspection report regarding the property.”
“24. AGREEMENT IN WRITING: If there is conflict or discrepancy between
any provision added to this Agreement (including any Schedule attached hereto) and any provision in the standard pre-set portion hereof, the added provision shall supersede the standard pre-set provision to the extent of such conflict or discrepancy. This Agreement including any Schedule attached hereto, shall constitute the entire Agreement between Buyer and Seller. There is no representation, warranty, collateral agreement or condition, which affects this Agreement other than as expressed herein. For the purposes of this Agreement, Seller means vendor and Buyer means purchaser. This Agreement shall be read with all changes of gender or number required by the context.”
Cheadles – Lawyers & Trademark Agents states the following:
REPRESENTATIONS AND WARRANTIES
One of the questions which the courts have been wrestling with is whether the statements contained in the “SPSI” or disclosure statements are representations or warranties. The third sentence in the first paragraph of the OREA form states that “The information is being provided for information purposes only and is not a warranty”.
A warranty is a statement collateral to the contract. Breach of a warranty entitles the purchaser to damages only and does not permit the purchaser to rescind the contract. A representation is a statement made by one party to the other, before or at the time of contracting, regarding some existing fact, or some past event, which is one of the causes that induces a contract.
In Ward v. Smith (2001) 45 R.P.R. (3d) 154 the B.C. Supreme Court adopted the following descriptions of disclosure statements:
“The purpose of the disclosure statement is to raise questions and concerns rather than give detailed answers to the disclosures made.”
“Although the property condition disclosure statement forms part of the agreement for a purchase and sale, it is not necessarily a warranty. Its main purpose is to put purchasers on notice with respect to known problems. The disclosure statement … merely indicates that the statements therein are true according to the seller’s current actual knowledge.”
“The disclosure statement does not call upon a vendor to warrant a certain state of affairs. It requires the vendor to say no more than that he or she is or is not aware of problems”.
The Court also stated “Representations are non-contractual. If they are not true, the appropriate remedy is not an action for breach of contract, but the avoidance or rescission of a contract entered into in consequence of the representation, and, possibly, a tort action for damages. Thus…. a misrepresentation, may:
(a) entitle the representee to avoid the contract, if the representation was fraudulently made;
(b) entitle the representee to rescind the contract, if the representation was innocently made or;
(c) entitle the representee to sue, in tort, for damages if the representation was negligently made”.
Therefore, it is clear that the statements made in the SPIS are not a warranty, but the court will consider them a representation. Depending on whether the representation was fraudulent, innocent, or negligent will determine the remedy of the buyer. The next two cases show that sellers must be very cautious in filling out the SPIS, because the courts will not hesitate to make sellers pay for a representation that turns out to be false.