Disclosure Statement Forms Part of the Contract

By Brian Madigan LL.B.

This Hunt and Eagle Auto case went to trial in the Small Claims Court at Stratford, Ontario in 2003.

Mr. and Mrs Hunt acquired certain premises in Stratford comprising both a residential building and a commercial building.

At issue were a number of items relating to fixtures and chattels and whether they could be removed or left behind. In any event, there appeared to be a great deal of animosity between the plaintiffs as purchasers and the vendor.

One particular matter involved the representations made by the vendor concerning the dishwasher in the Seller Property Information Statement.

The Court Analysis:

• On May 15 and 17, 2002 the parties executed an agreement of purchase and sale. Physically attached to the agreement and referred to is a Seller Property Information Statement signed by the defendant sellers March 21, 2001. In schedule "A" to the agreement the plaintiff buyers acknowledge receipt of the information statement, a copy of the M.L.S. "listing agreement" and a copy of the survey.

• That statement answers "no" to the question: "Are there any defects in any appliances or equipment included with the property?" That statement was executed by the defendants in March of 2001 shortly after the dishwasher had received a substantial repair and the question was undoubtedly accurately answered at that time. The defendants had an ongoing obligation to disclose changes in that information. The Court is satisfied that as of the date of closing there was a problem with the dishwasher, a problem about which the defendants were probably unaware but this item turns on the contract rather than on any latent defect.

• The Court finds there is a defect involving the dispenser but is not confident in the telephone opinion of what is required to remedy that defect. In any event it is not a serious defect but rather a matter of convenience for which the Court is prepared to allow $100.

COMMENT

A review of the reasons for judgment make it quite clear the Court favoured the vendors and made every effort to come down on the side of the vendors where possible. Nevertheless, here is a small problem with an appliance. As it turns out, there was one small defect. It didn’t matter that the vendors were unaware of the defect. It operated fine as far as they were concerned. But, truly, in fact, there was a defect.

The Court decided that the SPIS was part of the contract. The representation was “no defects”. The question relates to a guarantee or warranty. It is not directed to the vendors’ awareness. Even if the defect occurred after the repair, which was after the SPIS was signed, there was an obligation to update the SPIS to the closing date. Therefore, the Court decided in favour of the purchaser.

Even though this is an interesting strict interpretation SPIS case, it deals with appliances. In most cases, they are old. In many cases, they are really not worth repairing. Further, they add little to no value to the real negotiated purchase price of the property. So, why guarantee them? Why provide a warranty? Why not simply sell them “as is” and leave it, at that? By the time they are 5 or 6 years old they are truly worth little on the resale market.

Something that was omitted in this lawsuit was the examination of the Land Transfer Tax affidavit. In many cases, purchasers will value the appliances at $100.00 or less. They will state that value “under oath”, so as to limit the amount of retail sales tax payable, which would be about fourteen times the amount of the land transfer tax. If all the appliances and all other chattels were only worth $100.00, then what would be the value of the dishwasher alone?

This case also prompts consideration of the allocation of the purchase price between fixtures and chattels in the agreement. This way, any future issues will be much easier to resolve.

Obviously, accurate, complete and up to date information is required if the disclosure document is to be provided.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com