Full and Honest Answers to PDS Questions #416
By Edward L. Wilson
Property Disclosure Statements (PDS) have been adopted by real estate boards and associations across Canada, with most being similar to the various PDS provided by BCREA. The care that must be taken in completing the PDS has been considered in several court decisions.
In a recent Ontario decision, the court considered the Ontario Seller Property Information Statement (SPIS).(1) As a result of ice build up in the winter of 2003-2004, a house had water damage that had been largely, but not completely, repaired. When selling the house later in 2004, the sellers completed the SPIS with the following three questions that addressed the issue of water problems or damage:
7. Are you aware of any moisture and/or water problems?
8. Are you aware of any damage due to wind, fire, water, insects, termites, rodents, pets or wood rot?
9. Are you aware of any roof leakage or unrepaired damage?
The sellers raised the issue of the water damage and the repairs with their real estate agent and whether it should be disclosed in the SPIS. The real estate agent dissuaded them from doing so by making two points: the language of the question was in the present tense and there was no water damage at the time of signing the statement. Therefore, the sellers answered each of these questions with a "no."
The buyers found out about the damage prior to closing and refused to complete the transaction. The sellers subsequently sold the house to another buyer at a substantially lower price and sued the first buyers for damages for failure to complete the original transaction.
The seller's lawyer argued that the questions spoke in the present tense and called for answers about the condition of the home only as of the date the SPIS was signed. The court found no rational argument for a "present-tense" or "current" interpretation of the questions 7 to 9.(2) The court pointed to language in the SPIS that said the answers had to be complete and accurate, and concluded the questions should be given a plain and common sense reading.
The court concluded the answer "no" to the three questions was untrue, but implied that if "no" was checked off and further information about the damage and the repairs had been added in the additional comments section, a different conclusion may have been reached. The court found that, in light of the sellers' failure to disclose the damage, the buyers had a right not to complete the transaction.
The court canvassed several cases across Canada considering other PDSs(3) and concluded that the purpose of the PDS is to put the purchaser on notice of a problem. If there is a problem, the PDS raises questions and concerns, rather than providing detailed answers.
When completing a PDS with clients, REALTORS ® should always encourage a full and honest answer to the question raised and consider whether further information should be added through the additional comments section. A technically correct but misleading answer may result in serious consequences for a seller.
If in doubt whether something should be disclosed, it probably should be disclosed and, if appropriate, further details added to the additional comments section.
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