Caveat Emptor - Buyers' Due Diligence; s.39 of the Real Estate Act and the Power to Impose a Penalty for Frivolous Lawsuits #369

Mar 01, 2004

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By Gerry Neely
B.A. LL.B.

A buyer who bought a waterfront home subsequently sued the listing agency and salesperson in the Victoria small claims court for negligently misrepresenting the garage size and stating that the kitchen cabinetry was made of cherry wood. She complained the garage was not long enough to hold a standard sized car and the interior of the cabinets were made of melamine, claiming she would not have paid full price had she known.

The evidence established she had looked at the house over a period of six months and had the floor plans, which included the dimensions of the garage. She had the opportunity and an obligation to both examine the plans and simply open a cabinet door to discover what she was getting. Caveat emptor applied and, in dismissing her claim, the judge said she could not "close her eyes to something easily discoverable" and then blame the agent. 1

* * *

A case in the Port Coquitlam small claims court involved the purchase of a small coffee shop business, which was represented on the MLS® to have average monthly sales of $5,500 and daily sales of $200 to $250. Negotiations started in June 2000 and ended in the transfer of the business on August 31. The buyer found that daily sales only averaged $160 to begin with, and fell so much that he was forced to close in June 2001. Part of the loss occurred due to a leaky canopy that was intended to provide shelter for customers and, unlike Starbucks customers, none of the buyer's customers were prepared to sit in the rain.

The buyer sued the seller and the listing agent for misrepresentation of the monthly and daily income. The case against the agent was a breach of s.39 of the Real Estate Act, which requires an agent to provide 12-months of statements ending not more than 120 days before the signing of the contract. The agent was aware of this because the clause he added to the contract referred to financial years ending May 31, 1998 to May 31, 2000, which brought him within the 120-day period. However, these statements were unavailable and the parties agreed to substitute statements ending January 15, 1998 to December 31, 1999.

It was clear the agent had breached the Act and had not protected himself by obtaining a specific waiver by the buyer of the s.39 requirements; however, the judge accepted the agreement to substitute statements as the buyer's waiver of these requirements.

An examination of the financial statements confirmed the accuracy of the monthly and daily earnings set forth in the MLS® information. There had been no false statement and the claims against the agent and seller were dismissed. The judge noted there was no guarantee in the listing or any other document that the business would continue to earn the stated monthly and daily revenue. He commented that buyers have duties of due diligence and they cannot "sit in the weeds" and wait for the other side to make mistakes.

In addition to awarding costs for filing fees, travel, witness fees and other court costs, the claimant was ordered to pay to the defendants a penalty of $1,000. The court has the discretion under Rule 20(5) of the Small Claims Act to order a party, who makes a claim and proceeds through trial with no reasonable basis for success, to pay to the other party up to ten per cent of the amount claimed. 2

  1. King v. Bruce et al., SPCBC, Victoria, Reasons for Judgment, February 17, 2003.
  2. Lintotts Holdings v. Kim et al., PCBC, Coquitlam, Reasons for Judgment, February 19, 2003.

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