It may be stating the obvious to point out that purchasing a house is one of, it not the, biggest financial investments you will ever make. While there are a number of costs associated with purchasing a house, it is the unexpected ones that are often the worst, not only because you did not see them coming (and therefore did not budget for them), but the unexpected costs can also be the biggest. Often problems such as defects in the foundation or asbestos insulation are only discovered after a house is purchased.
As a prospective purchaser, it is important to know how you can protect yourself from these unpleasant surprises. When you have a real estate agent and a home inspector working with you at various stages of the process, it is easy to get lulled into a false sense of security, assuming that, with professionals on your side, very little can go wrong.
The recent Ontario case of Rimmer v. Lahey highlights what can happen when communication is not clear between a home inspector and a purchaser. Mr. Rimmer and his son purchased a house and, shortly after moving in, discovered a number of serious issues with the structure. Evidence showed that there was differential settlement of portions of the house resulting in cracks in the masonry, the driveway and the crawlspace; the doorway between the kitchen door and the foyer was not plumb (didn’t fit properly); and the kitchen floor was slanted enough that a tennis ball placed on the floor would roll to the south side of the house.
The Rimmers had a home inspection, and the inspector verbally indicated an issue with the kitchen floor. Mr. Rimmer’s son testified that he “skimmed” the inspection report, but the report made no mention of a slanted floor.
Justice Broad quoted from an earlier case summarizing a home inspector’s duties:
The broad purpose of securing a residential home inspection is to provide to a lay purchaser expert advice about any substantial deficiencies in the property which can be discerned upon a visual inspection, and which are of a type or magnitude that reasonably can be expected to have some bearing upon the purchaser’s decision-making regarding whether they wish to purchase the property at all, or whether there is some basis upon which they should negotiate a variation in price. Broadly speaking, it is a risk assessment tool.
This summary is in line with the Standards of Practice for home inspectors set out by the Ontario Association of Home Inspectors (the “OAHI”). In this case, the inspector mentioned the kitchen floor verbally to Mr. Rimmer’s son, but did not reference it in the written home inspection report. The Court ultimately found that the home inspector failed to carry out his duty by not sufficiently alerting the purchaser to the issue of the slanted kitchen floor, denying the purchasers the opportunity to negotiate a lower price, or to walk away from the deal altogether. The home inspector was ordered to pay to the Rimmers $18,645 (the estimated cost to level the kitchen floor, plus HST).
While the purchasers were successful in obtaining a favourable judgment to cover some of their damages from the home inspector, the reality was that the amount of damages awarded would only cover leveling the kitchen floor (as opposed to fixing the underlying foundation issue, the cost of which was estimated at approximately $56,000). Interestingly, the Court only found that the home inspector failed to carry out his duty with respect to the sloping kitchen floor; the Rimmers did not prove that the home inspector was negligent for failing to draw the conclusion that the kitchen floor, and the other issues noted above, were possibly the result of differential settlement due to inadequate sub-surface soil conditions.
The Rimmers also sued the seller, and the seller’s real estate agent and brokerage, but the case against them was dismissed before trial. Even though the Rimmers had some success at trial, it is important to be mindful of the costs and time associated with litigation – the Rimmers signed their Agreement of Purchase and Sale on July 5, 2008, and their case was finally heard on June 24 to 28 and July 5, 2013.
How could this have been prevented? How can you protect yourself from the same or similar post-closing defects? The truth is, there is no such thing as 100% protection when buying a house, but you can dramatically decrease the odds of an unpleasant post-closing surprise by properly informing yourself.
The Ontario Real Estate Association’s Seller Property Information Statement (the “SPIS”) is a good place to start.
Ask the seller to complete the SPIS. When completing the SPIS, a seller is required to do so honestly and completely, and in doing so the seller must conduct the proper investigations to ensure that the information they provide is accurate. It should be noted that sellers may be reluctant to complete the SPIS. Even if the seller refuses to complete the SPIS, you can review the SPIS and familiarize yourself with the information that is requested in the form. If you feel this information is important for you to make the right decision, ask the seller specific questions about the state of the property before you sign an Agreement of Purchase and Sale. Some sellers refuse to complete the SPIS or to answer questions simply because they do not know the answer, or perhaps they are concerned about opening themselves up to liability; in either case, asking the questions gives you the opportunity to walk away, or proceed, knowingly accepting the risk of potential issues with the property.
When you do get a home inspection, it is advisable to attend the inspection, and bring someone with you, that way you can ask questions of the home inspector (and the seller, if they are present), and the other person can take notes. Also, make sure you fully understand the scope of your home inspection (which should be written into your home inspector’s contract). Take a moment to visit OAHI’s website (www.oahi.com) and review the Standards of Practice, paying close attention to the limitations on, and exclusions from, a home inspector’s responsibilities.
Finally, don’t be afraid to ask questions of your real estate agent; even if they are unfamiliar with the houses in the area, they may have colleagues who are familiar and can provide you with valuable information (for example, is the area known for having foundation problems, or is asbestos insulation common in those homes).
As mentioned above, there is no guarantee that your house will be free of post-closing defects, but collecting as much information as possible about existing and potential issues is the best protection against unpleasant and expensive surprises.
David Reid is an Associate with the law firm of BrazeauSeller.LLP. He practices in the areas of corporate & commercial law and real estate. David can be reached at 613-237-4000 ext. 252 or email@example.com. For more information about David, please visit www.brazeauseller.com.
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