Property Disclosure Statement – Shield or Sword? #406

By Jennifer Clee

In the early 1990s, the profession introduced the Property Disclosure Statement, or PDS (formerly, the Property Condition Disclosure Statement). From its inception, the PDS was intended to shield sellers and representatives from lawsuits by minimizing their risk of liability for negligent misrepresentation. By providing a written record of the seller’s knowledge and statements about the property, the PDS was designed to eliminate uncertainty regarding the seller’s representations about the property and ensure disclosure to the buyer of any known concerns or issues. In addition to protecting buyers from unscrupulous sellers, the PDS was also designed to protect the representative by shifting reliance for information about a property to the seller, the primary source of information.

It has become apparent that, in the years following its inception, the PDS is being used by buyers as a sword against sellers. Buyers routinely advance claims against sellers based upon the statements or answers set out in the PDS, not only for negligent and/or fraudulent misrepresentation, but for breach of contract or breach of warranty. This is significant because damages recoverable for breach of contract or warranty are often greater than those recoverable for claims founded in negligence.

A recent decision by the BC Supreme Court has confirmed that, to recover damages for breach of contract based upon the representations in the PDS, the representations must either be considered terms of the Contract of Purchase and Sale, or form a collateral contract subsidiary to the main contract. The Court held that the PDS is not a collateral contract in itself and, for representations to be considered terms of the contract, the PDS must be incorporated as part of the Contract of Purchase and Sale.¹

Where the PDS is incorporated into the contract, those representations requiring the seller’s knowledge of a state of affairs are consistently held not to be a contractual term or a warranty.² While representations in the PDS consisting of a statement of fact may be considered a warranty, or a contractual term, generally the court must be satisfied that there was a contractual intention on the part of the seller to have warranted the accuracy of the statement. The simple fact that a seller has completed a PDS, which is then incorporated as part of the contract, is not, in itself, evidence of a contractual intention on the part of the seller to warrant the accuracy of the statements in the PDS.³

In a recent Provincial Court decision, the judge made the following assertion:

“The statements in the PDS . . . are not terms of the contract, they are representations. Clause 18 of the Contract of Purchase and Sale expressly provides this. These statements do not constitute a promise to do anything or refrain from doing something, they simply assert the existence of a state of facts.”(4)

In summary, while some buyers have attempted to use the PDS to create additional avenues for recovery, the courts have resisted this attempt and, for the most part, recognize the PDS for what it was meant to be—a document containing representations as to the sellers’ knowledge of the property.

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