State of Title Certificate Would Have Avoided Award of Excessive Damages #28

By Gerry Neely
B.A. LL.B.

One conclusion to be drawn from a recent decision of the Chief Justice of the Supreme Court of British Columbia is that a search of title or the purchase of a $3.00 State of Title Certificate would have avoided an award of damages in excess of $50,000.00 against the real estate agency. The licencee who had obtained the listing brought prospective purchasers who indicated their intention of building a swimming pool on the property. While walking over the property with the vendors and the licencee, the vendors were unable to locate precisely a water line easement which they believed was either on the easterly property line or very close to it. The purchasers felt that if that were the case they would not be able to build their swimming pool in the area adjacent to the water line, but that didn't trouble them because there was sufficient room on the other side of the property. However, there was an easement for a gas line on the other side of the property, although right on the property line. The licencee's evidence was that she was present when these questions about the water line took place but not about the gas line. It is evident that no one knew precisely where the easements were and that as far as the vendors were concerned, it had not been material to have that information since neither easement interfered with their enjoyment of the property.

The offer accepted by the vendors used a standard form of interim receipt which included the following language: ". . . free from all encumbrances (subject to existing tenancies) save and except (mortgage) at the purchase price of $130,000.00." Following their acceptance of this offer, the vendors then purchased another lot and made arrangements to obtain interim financing to commence construction of a home. Prior to completion, the purchasers while doing landscaping learned of the existence of two easements registered against title. One easement in favour of Inland Natural Gas ran along the property line and the judge held that it did not interfere with the purchaser's enjoyment of the property. The other easement which was in favour of Peachland Irrigation District, gave the district the right to enter any part of the lot in order to install and repair a pipeline and it prevented the owner of the property from constructing any building within ten feet on either side of the pipeline. Thus, the easement was not confined to a specific area of the lot and the Court held that this easement was a "serious defect in the vendor's title which could affect the owners' enjoyment of the property". The purchasers were entitled to repudiate the contract and to have the amount of the deposit of $5,000.00, plus costs, plus prejudgment interest paid to them by the vendors.

The next question was whether the vendors were entitled to recover their damages from the licencee and her employer. In the reasons for judgment, the Chief Justice referred to the recommendation of the Real Estate Council of British Columbia to licencees to obtain a State of Title Certificate. He went on to say that he did not intend to lay down any general proposition that a real estate agent must always search a property listed with him for sale, but stated that there are some very special circumstances in many cases where a search would be highly advisable. The search would have disclosed the existence of the easements although the licencee was made aware from the discussions between the parties that there was at least one easement on title. The Court held that since she was on notice as to its existence, she failed to exercise the degree of care and skill that is expected of an agent in such circumstances when she failed to refer to the existence of the easements in the interim agreement. This resulted in the vendors' executing an agreement in which they covenanted to deliver clear title, free of encumbrances except for the mortgage. The Court held that the licencee had "an obligation, in my view, to conduct this piece of business in a way which would protect both parties, particularly the vendors who employed her, and who were to pay her a substantial fee for her services." As to whether the vendors had any responsibility to object to an interim agreement containing a statement that they themselves must have known to be incorrect, the Court made this comment: "It is a matter of common experience that lay people, like the vendors, will usually sign documents prepared for them by experts. They assume, understandably, that everything is all right, as their advisers would tell them if it wasn't so."

For the reasons referred to, the Court held that the licencee was liable in damages for a breach of duty of care, which the relationship of agency imposed upon her, and the real estate agency employing her was vicariously liable in damages, which were fixed as follows:

This case raises a number of points, including the desirability of having errors and omissions insurance.

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