Goodbye Salespersons, Nominees and Agents; Paragraph 2(f) of the PDS—Building Permits, Licensee’s Standard of Care and Material Latent Defects #379

By Gerry Neely
B.A. LL.B.

To familiarize ourselves with the name changes for the classification of licensees in the new Real Estate Services Act, Legally Speaking columns from now on will describe salespersons as representatives, nominees as managing brokers and agents as brokerages.

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A managing broker's lament about the consequences of a seller who falsely answered "yes" to paragraph 2(f) of the residential Property Disclosure Statement (PDS) illustrates the dilemma representatives face when taking a listing and completing a PDS.

Paragraph 2(f) asks the seller whether he or she is aware if any additions or alterations were made without a required permit. A permit is generally required when health or safety related work should be inspected. You should be able to rely on the seller's choice of an answer. However, if there are circumstances that make you doubt its accuracy, you should also question it. In addition, buyer's representatives should disclose relevant information they know about and obtain answers to questions buyers ask them.

A representative flagrantly failed to do so in a 1995 case, where a 40-year-old army hut was converted into an attractive rancher represented to be three years old. The seller had answered "no" to paragraph 2(f).

The representative was not initially aware of the home's true age, nor that it had been a shell before its conversion. He discovered this from someone other than the seller after a conditional offer collapsed, but didn't search for permits or change the PDS. It was the representative for a second potential buyer who found that no permits had been issued to the seller. The sale proceeded when the seller signed an addendum prepared by the seller's representative to give the buyer a warranty that the house met the current building code standards.

But, of course, it didn't—there were many structural deficiencies and building code violations. Damages of $70,000 on an $80,000 purchase price were ordered to be paid by the seller, the brokerage and the representative. The representative was negligent for knowingly passing on the seller's misrepresentation to the buyer's representative. In addition, he was equally as liable as the seller for the representation that the house complied with the building code, because he failed to check for permits.

The judge's opinion was that, while the representative couldn't be expected to know the building codes in every respect, the standard of care expected of him was to know the relationship between the building code and the municipal bylaws, which results in inspections and the issuance of building permits.¹

The deficiencies were material latent defects, which may have made the home potentially dangerous or unfit for occupation. The repair costs were extraordinary. Any one of these factors is a reason to determine whether work was done with the appropriate permits and inspections. The lack of a permit and the presence of these factors require disclosure by both sellers and licensees.

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