Broker's Responsibility to Have Office Policies to Help Representatives Deal With Water Problems; Contract to Enter Into a Contract Is Unenforceable #382

Apr 01, 2005

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By Gerry Neely
B.A. LL.B.

An Alberta decision about a broker's failure to establish policies for representatives to deal with known water problems in homes constructed by a developer in a given area reflects the high value of local knowledge.

The broker's problem started when a new licensee, who had never shown a house by herself, was on call. First-time homebuyers were referred to her even though they had asked for an experienced REALTOR®. Regrettably for all, she misrepresented her experience and qualifications.

She showed them a house that had signs of water damage. It was built by the developer, although the significance of that wasn't known to her. She removed the buyers' concerns with explanations the judge held were negligent and fraudulent. They bought the house and successfully sued for damages when they found they had to deal with continuing leaks in the basement.

It was common knowledge in the broker's office that the developer's houses meant "buyer beware." The street the house was on was known to have the worst water problems in the area. One representative searched the title of any house she dealt with in the area to confirm this particular developer wasn't the builder. However, the listing representative, who worked in the broker's office, wasn't aware of the problem.

The judge decided this wide variation of knowledge exposed new representatives and the public to the risk of litigation that might have been avoided if the broker had two office policies in place:

  1. identify potential problems affecting houses in the area, and
  2. train new representatives on how to deal with repeated buyers' questions concerning water problems.

The lack of these policies led the judge to order the broker to pay two-thirds of the damages and the representative the remaining one-third.1

Legally Speaking 129 discusses an Ontario decision of a broker's liability for not knowing of a serious termite infestation and for failing to instruct his representatives concerning important trends in the area.

* * *

A lawyer acting for the seller drafted a sale agreement containing all essential information needed for a binding Contract of Purchase and Sale, except the completion date, which hadn't been discussed by the parties.

This clause was added to deal with the omission: "That the Contract of Purchase and Sale of the Property will be prepared by the Purchaser's lawyer with terms and conditions, and the date of the completion of the Property to be agreed by the Vendor and the Purchaser."

The buyers' lawyer deleted "and the date of completion of the Property" and added an additional paragraph containing a fixed completion date. The seller's lawyer asked for another date, which the buyers accepted by initialling the change; however, no Contract of Purchase and Sale was ever signed.

The buyers' lawyer should have deleted the entire clause, because no binding contract could exist until the parties agreed on the terms of a further contract. The seller refused to sign the transfer document and the buyers lost their action to force the seller to complete.2

  1. MacDonald v. Gerristen, Alberta Court of Queen's Bench, Judicial District of Calgary, June 10, 1994.
  2. Soo Yuen Society v. Tom et al., SCBC, Vancouver Registry, Reasons for Judgment, July 5, 2004.

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