Beware a House of Lies: Negligent Misrepresentation in Real Estate By Ivan Merrow Negligent misrepresentation is a more specific type of negligence claim used to compensate victims of lies or misinformation that cause them harm. In general, people are most vulnerable when relying on professional advice to decide what to do next. For example, when buying a home, people rely on the advice of their real estate agent and the representations made by the seller when making their decision. If either the seller or real estate agent knowingly deceives the buyer during the sale, the deceptive party may become liable for negligent misrepresentation. That was exactly the situation in the leading negligent misrepresentation case Krawchuk v. Scherbak, which was decided in the Ontario Court of Appeal in 2011. Krawchuk epitomizes every homebuyer’ nightmare: after purchasing her first home, the plaintiff Ms. Krawchuk discovered that the house had serious structural defects and plumbing problems. The sellers knew there were problems with the home, but did not disclose the defects. Ms. Krawchuk moved in and noticed the foundation was shifting. She also soon found out that the plumbing was ramshackle. The eventual repair costs exceeded the value of the entire home’s purchase price by $80,000. Krawchuk tells us the case the plaintiff has to meet for a negligent misrepresentation claim to succeed: the defendant owed the plaintiff a duty of care based on a “special relationship”;the defendant made statement(s) to the plaintiff that were untrue, inaccurate or misleading;the defendant acted negligently in making the statement(s);the defendant reasonably relied on the statement(s); andthe defendant sustained damages as a result. Ms. Krawchuk was found to have a special relationship with the sellers. They had a duty to disclose known defects and errors in the home to potential buyers. The sellers’ statements were found by the court to be plainly untrue. The Court found that the sellers were also negligent, because once a home seller chooses to “break the silence” about the condition of their home, they must speak truthfully and completely. Importantly, Ms. Krawchuk was able to demonstrate that she relied on the sellers’ statements to make the purchase. She may not have been successful if there was evidence that the lies or misinformation were not a determining factor in her purchase. Ms. Krawchuck actually asked the sellers about the sloping floors and seemed content with their answer. Little did she know that the floors were sloping because the structure was falling apart. The sellers attempted to argue that the sloping floors were a “patent defect” that was obvious, and it was Ms. Krawchuk’s fault for failing to inspect the house properly. The Court disagreed, because the purpose of the sellers’ information form was to tell the buyer about any known defects. Home buyers do not have a duty to challenge the honesty of home sellers—they should be able to reasonably rely on the sellers’ disclosure. Finally, Ms. Krawchuk was in fact damaged by her reliance on the sellers’ statements. Ms. Krawchuk was compensated for her losses after a long battle. The lesson for home sellers is this: disclose all known defects in your home, or remain completely silent so buyers know they have to investigate it for themselves. Home buyers should ask plenty of questions and retain independent legal counsel when purchasing a home. If you have any questions about negligent misrepresentation, real estate transactions, or other legal issues, contact the lawyers at Devry Smith Frank LLP at 1-416-449-1400. By Fauzan SiddiquiBlog, Real EstateDecember 15, 2015November 24, 2020
Time of Essence Clause in Real Estate Transactions Remember that time when you made a reservation for a restaurant but later forgot about it or changed your mind right before? And then you breathed a sigh of relief knowing the restaurant will never know who you are and you will not have to pay a fine for going back on your word. Although a rather large leap, the same cannot be said for real estate transactions. Almost invariably in Canada, a contract of sale for a piece of real estate property will expressly provide that time is of the essence. So if you change your mind about purchasing the property or cannot attain suitable funding in time for the closing date, for instance, you may be liable for damages and have the contract come to an end. However, there are several important things to note: You cannot rely on the clause unless you have demonstrated that you are ready, willing, and able to complete the agreement. In other words, if both parties are not ready to close on a real estate transaction, neither party can immediately rely on the clause to bring an action for specific performance, damages, or termination of the contract. Similarly, you must proceed diligently to fulfil your obligations, and not act in bad faith by interfering with the other party’s ability to fulfil their responsibilities. Further, a clause providing for the time of essence in a contract of sale can be negated largely in three different ways: Waiver: If one party in a contract takes action that makes it clear that the strict contractual provisions will not be enforced. For instance, if both parties agree to extend the closing date by two days then there is a waiver. Election: When one party breaches the contract and for instance does not have the requisite financing completed on the closing date, the other party could agree to extend the closing date. Bad faith: As discussed earlier, if the transaction fails to close because of one party’s lack of action or bad faith, that party cannot rely on the time of essence clause. So just remember – take more care and time in entering into an agreement to purchase real estate than you would for where will you have dinner tonight. For more information or any other questions regarding real estate transactions, please contact our real estate lawyers. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By Fauzan SiddiquiBlog, Real EstateJuly 16, 2015June 16, 2020