Real Estate

The Duty to Disclose & Real Estate Sales

Written on behalf of Cherkowski Marsden LLP

When buying a house, people often wonder what the owner is obliged to disclose to potential buyers. While it may be obvious that defects in the home should be included in any disclosure, as they will result in potentially costly remedial work for the new owners, what about other issues that may simply be…unpleasant? Some people maintain that they could not live in a home where a person has died, but if that is the case, is this something an owner is duty-bound to reveal?

In a recent decision of the British Columbia Court of Appeal (BCCA), the court had to consider whether a murder was something the owner was obligated to disclose to a potential buyer. The seller had listed a large home for sale in an affluent neighbourhood near Vancouver. A potential buyer emerged, who inquired as to the reason the home was being sold. The seller’s agent explained that the granddaughter of the seller was changing schools, and so they needed to relocate to a new neighbourhood. What the agent failed to say was that the granddaughter’s father had been shot to death outside the home’s front gate and that he was suspected of being involved in organized crime. Following reports of this in local media, the granddaughter’s school had requested she relocate to a new institution.

The seller had asked her agent whether she was bound to disclose the murder in front of the property, and after looking into this, it was decided that she only need to disclose that fact if directly asked about it.

At Trial: Failure to Fully Disclose is Tantamount to Fraudulent Misrepresentation

When the buyer eventually found out about the murder, she refused to complete the purchase. The seller brought an action for breach of contract, and the buyer counterclaimed for fraudulent misrepresentation. At trial, the court found in the buyer’s favour. While finding that the death did not constitute a latent defect of the property, the seller’s concealment of it did amount to fraudulent misrepresentation.

The trial judge held that the buyer had been entitled to a full picture of the facts when she inquired about the reason the seller was relocating. Since the seller had provided only a partial response, intending to conceal pertinent facts, they had fraudulently misrepresented the situation. The court ordered that the contract be revoked and that the buyer’s deposit be returned with interest. The seller appealed the decision.

The BCCA: There Are Limits to Expectations of Disclosure

In its analysis of the case, the BCCA looked at what had been asked of the buyer, and the answer provided. In this case, the buyer had asked the seller’s agent why the seller was moving, and she explained that it was to be closer to her granddaughter’s new school, which was true. The buyer had not asked if someone had been murdered on or close to the property. Given the question posed, how much detail was the seller obligated to provide?

The court then went on to consider other situations that could result if the seller’s actions were found to be fraudulent misrepresentation:

If [the seller] were under a duty to disclose why her daughter was going to school in West Vancouver, why she was not going to public school, and why she had left her previous private school, the law relating to real estate transactions would be turned on its head. Imagine, for example, the following situations:

1.         An owner wishes to sell and when asked why, replies that she is getting a divorce. Is she also required to disclose that her husband often assaulted her in their bedroom? Or why he assaulted her? Or that she has been committing adultery with another man?

2.         An owner wishes to sell and when asked why, replies that she is moving to a different city. Is she required to explain that she is moving to a different city because she has been fired from her job? Must she say she was fired for defalcation of funds? Or that she stole in order to pay gambling debts? Or that her children have been bullied by teenagers next door?

3.         An owner wishes to sell his house for a long list of reasons, including as #10 on the list that he dislikes his neighbours (who are always wanting to borrow his tools) and as #15 on the list, that his late wife died there five years before. When asked why he is moving, he replies that “It’s time for a change.”

The court found that imposing a duty to disclose every personal reason behind a desire to sell a home would open up opportunities for unhappy buyers to claim fraudulent misrepresentation on an untold number of transactions going forward, even for reasons that had no bearing on the value or usefulness of the property itself. As a result, the BCCA reversed the trial judge’s decision, finding in favour of the seller and remitting the matter back to the trial court for a determination of damages.

Caveat Emptor: Buyer Beware

In the purchase and sale of a residential property, sellers should feel confident in the fact that they do not need to provide personal details that do not pertain to the value of the property itself if they are not asked about those details. However, it should be noted that the outcome of this case may have been different had the buyer specifically asked about crimes or violent deaths that had occurred at or near the home.

Buyers who have strong opinions about certain aspects of a property that do not have to do with the physical condition of the land or buildings should be sure to ask specific questions. Do not expect a detailed account of a seller’s personal history with the home based on a question or two.

The lawyers at Cherkowski Marsden LLP have over 50 years of combined experience assisting clients with real estate purchases and sales. They will carefully review any Contract of Purchase and Sale before signing in order to ensure that your rights and concerns are properly addressed. To arrange a consultation with an experienced lawyer, please contact their office online or by phone at 250-308-0338.