Number 449, October 2011
WHAT'S IN A NAME? ENGINEER'S REPORTS AND THE PDS
The recent BC Supreme Court decision of Meslin v. Lee1 considers what constitutes an “engineer’s report” for the purpose of disclosure on the Property Disclosure Statement (PDS).
The action involved a condominium sale (the property) that failed to complete. On the completion date, the buyers rescinded the Contract of Purchase and Sale on the basis that the seller had falsely misrepresented on the PDS that there was no engineer's report.
The property was located in a complex that had not experienced any major mechanical or structural problems. However, as the building was over 20 years old and some of the building envelope components were coming to the end of their intended life span, the proactive strata began to consider options for assessing the condition of its building and systems, and to plan future expenditures associated with an aging building.
The strata arranged for Mr. Gioventu, Executive Director of the Condominium Homeowners Association of BC, to speak to the owners regarding the requirements to be met by BC strata corporations in preparing for problems associated with aging buildings. At that presentation, Mr. Gioventu discussed the differences between an engineer's report and a contingency reserve fund study (CRFS). He advised that an engineer's report required invasive testing, had to be prepared by an engineer, and was appropriate when a strata corporation suspected a problem which required the report in anticipation of remedial work.
Mr. Gioventu described a CRFS as a "financial planning tool used before specific problems are known or suspected, to create an appropriate budget to deal with the inevitable failure of building components as they reach the end of their life expectancy," 2 which could be prepared by an accountant, an engineer or other qualified individual.
Shortly after Mr. Gioventu's presentation, the strata hired RDH Building Engineering Ltd. (RDH) to inspect the building and its mechanical systems, as well as prepare a report and 25 year capital plan for the complex. The strata's stated goal was to develop an overall building maintenance plan to allow owners to anticipate their yearly expenses and to ensure the building was maintained in excellent condition. RDH produced a report entitled "Reserve Fund Study and Maintenance Plan."
When the seller listed his property, he completed a PDS and when asked whether an Engineer's Report and/or Building Envelope Analysis was available, he answered "no," given Mr. Gioventu's distinction between an engineering report and a CRFS. The seller believed that he had completed the PDS honestly and accurately.
Just before completion, the buyer learned of the RDH report and after reviewing the report, rescinded the contract. The seller sued the buyers for breach of contract. The Court dismissed the seller's action, holding that the buyer was entitled to rescind the contract as the seller had innocently misrepresented on the PDS that there was no engineer's report. The issue for the Court was what constituted an "engineer's report" for the purpose of disclosure on the PDS.
The Court noted that the term "engineer's report" is not defined in the PDS. As the RDH report was prepared by an engineering firm, the Court found it was clearly an "engineer's report" as referred to on the PDS. The Court stated that there was no reason to depart from the ordinary meaning of the words used on the PDS. Using the ordinary meaning of the words was consistent with the purpose of the PDS, which is to ensure a potential purchaser is well informed about the property to be purchased.
Given Meslin, sellers of strata units completing a PDS should disclose any report prepared by an engineer for the strata concerning the state of the building and the cost of repairs, in addition to any building envelope analyses. Licensees acting for sellers completing a PDS should be alert to this issue and ensure their clients are aware of this decision.
Jennifer A. Clee
| ||1. ||Meslin v. Lee,  B.C.J. 1694. |
| ||2. ||Supra, para.11. |
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