Defects, Duty to Disclose Those That Are Reasonably Discoverable #66

By Gerry Neely
B.A. LL.B.

We import more than fruit, vegetables, movies and the Beach Boys from California; now we may be importing their law. A licensee has forwarded a reference to a decision of the California Supreme Court which contains reasons similar to those of a recent British Columbia decision concerning the duty of an agent. The California case involved a purchaser of a house on a hill who was returning home one evening looking forward to a dry martini with a twist of lemon from his own lemon tree. Unfortunately he arrived home to find that the lemon tree and his house had travelled during the day in a southerly direction down the hill into the next block.

A trifle vexed at the discovery that he had been sold a mobile home, he initiated an investigation which revealed that during the three years immediately preceding his purchase, there had been two landslides on the property. His vendor had taken action to prevent further subsidence of the soil, but surprise, surprise, had not told the agent of the soil problems. The purchaser sued the listing agent (among others) and the evidence at trial was that the agent was aware of certain "red flags" which should have alerted him to the potential problems.

The agent said that his duty was only to disclose to a prospective buyer the facts about the property known to the agent. The trial judge and the California Court of Appeal agreed that the listing broker had a duty to disclose not only known defects, but those that are reasonably discoverable.

The British Columbia case dealt with the purchase by a young couple in September, 1981, of a lot which they intended to build upon in a few years when they could afford to do so. Had they wanted to view the lot a few months later, they would have needed hipwaders since the area flooded annually in the winter, a fact known to the licensee but not disclosed to the purchaser.

It was evident, however, that the lot was unserviced, since it was in the midst of an open field with no roads in place. The licensee did a number of the right things, by searching title, obtaining a copy of the Plan of Subdivision and asking the municipality questions concerning zoning and plans for servicing. The municipality confirmed that the lot was unserviced and the municipality had no plans to provide servicing, information relayed to the purchasers by the licensee. However, the licensee did not ask what restrictions there might be on the use of the land, a questions which would have revealed the existence of a bylaw which prevented the deposit of earth fill on the property.

When the purchasers became aware of the problem, they stopped payments to the vendor under a mortgage taken back by her. The vendor foreclosed, and the purchasers sued for rescission of the contract.

As far as the purchasers knew, the only obstacle to construction was the lack of servicing. Had they been made aware of the flooding, of course they would not have offered to purchase the property. Had they been made aware of the bylaw which prevented the deposit of earth fill, they might have asked questions which would have led to the disclosure of the permanent impediment against building. As it was, they had not received what they had bargained for, which was a piece of land upon which they could build a home when their financing and the municipality's servicing were in place.

The judge stated that the licensee had a duty "to obtain all the information that is relevant and necessary so that the prospective purchasers are able to make a value judgment as to whether to acquire the property. That information can come from a variety of sources, including the municipality in which the land exists, the appropriate land registry office, from presumably other real estate agents, and certainly from experience. The information I think is to be freely given and is to be complete, both with the realization that the prospective purchasers are relying upon the information to make the decision as to whether to purchase the property".

The judge rescinded the agreement between the vendor and purchasers and ordered the repayment to the purchasers of the money they had paid to the vendor. The licensee and agent were required to compensate the owner for all costs incurred by the owner, including interest, the real estate commission paid by the owner and the legal costs of both the purchaser and the vendor.

The judge had little sympathy for the owner because she no doubt was aware of the flooding and ought to have made sure that the agent fully disclosed that fact to all prospective purchasers. However, both this case and the California case appear to impose a higher duty upon the agent than they do upon the owner of the property.

1.

Gray v. Baidwan,S.C.B.C. 83/0465, Victoria Registry.

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